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RBI Rate Cut Signals Opportunity for Fixed-Income Investors, Say Experts
The Reserve Bank of India’s (RBI) recent decision to reduce the repo rate by 25 basis points to 6.25% and shift its policy stance from “neutral” to “accommodative” has sparked optimism among fixed-income market participants. Financial experts believe this pivot creates a strategic opportunity for investors to strengthen their exposure to long-term bonds and fixed deposits.
Market Reaction and Forward Guidance
While the rate cut was largely anticipated, the change in stance was keenly watched. India’s 10-year government bond yield responded marginally, settling around 6.44%, reflecting the market’s expectation of continued easing amid global volatility.
Vishal Goenka, Co-Founder of IndiaBonds.com, noted that much of the cut had already been priced in. “Considering the macroeconomic uncertainty globally, the domestic market reaction has remained muted. Nonetheless, increasing allocation to fixed-income instruments is a prudent move, especially given the likelihood of further rate reductions.”
Deepak Panjwani, Head of Debt Markets at GEPL Capital, expects the 10-year yield to decline towards 6.25% by the next MPC meeting, with a trading band of 6.25%–6.60% through September 2025. He projects an additional 75 basis points of easing over the coming quarters.
RBI Signals Confidence in Macroeconomic Stability
According to Suresh Darak, Founder of Bondbazaar, the RBI’s dual move—cutting rates and adopting an accommodative stance—indicates confidence in current inflation trends and macroeconomic conditions. “This strongly suggests that interest rates may trend lower or remain stable in the near term,” he said.
Deepak Agrawal, CIO–Debt at Kotak Mahindra AMC, echoed this sentiment, forecasting another 50 bps rate cut in the next six months, particularly in light of global growth concerns stemming from geopolitical developments and tariff escalations.
Portfolio Strategy: Long Duration and Flexibility Key
Experts recommend that investors consider long-duration and dynamic bond funds to capture the benefits of falling yields. These funds are best positioned to benefit from price appreciation as interest rates decline.
Prashant Pimple, CIO–Fixed Income at Baroda BNP Paribas Mutual Fund, emphasized that real positive interest rates make fixed income attractive. He also sees scope for additional returns via a flattening yield curve and narrowing credit spreads.
Mahendra Kumar Jajoo, CIO–Fixed Income at Mirae Asset Investment Managers, highlighted the steepness of the yield curve, especially the 10–30/40 year spread of nearly 40 bps, suggesting ample room for flattening and capital gains on the long end.
Puneet Pal, Head–Fixed Income at PGIM India Mutual Fund, recommends dynamic bond funds for their ability to adapt across durations and between government and corporate debt. “This flexibility is ideal at this point in the monetary cycle,” he said.
For more diversified exposure, a barbell strategy—combining short- and long-duration assets—could also serve well in balancing liquidity with long-term capital appreciation.
Fixed Deposit Strategy in a Falling Rate Environment
The shift in monetary policy is expected to lead to a decline in fixed deposit (FD) rates, particularly as banking sector liquidity remains healthy. This presents a window of opportunity for depositors.
“Investors with surplus funds should consider locking into long-term FDs currently offering higher yields,” said Santosh Agarwal, CEO of Paisabazaar. “Select private and small finance banks continue to offer rates of 8% or more, which could prove advantageous as broader rates begin to decline.”
Outlook
With the RBI likely to continue its accommodative stance, experts suggest that investors reallocate toward fixed-income instruments to capitalize on potential capital gains and preserve income stability. The evolving global and domestic macroeconomic backdrop makes proactive portfolio positioning increasingly important.
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