RBI rate pause offers a window of opportunity for fixed-income investors
Tired of too many ads?
Remove Ads
Balancing Growth and Global Risks
Tired of too many ads?
Remove Ads
What It Means for Fixed-Income Investors
In its latest Monetary Policy Committee (MPC) meeting, the Reserve Bank of India ( RBI ) maintained a status quo on the repo rate at 5.50% in August, marking a cautious stance amid a rapidly evolving global and domestic landscape.After frontloading 100 basis points (bps) in rate cuts since February 2025, the central bank now appears to be in a 'wait-and-watch' mode, balancing subdued inflation with emerging macroeconomic uncertainties.According to Vishal Goenka, Co-Founder of IndiaBonds.com, 'RBI as expected kept rates unchanged at the policy meeting in the face of uncertainty due to tariffs. With inflation expectations down to 3.1% and growth projections steady at 6.5%, they have created optionality for now.' He adds that future rate actions will likely be guided by developments on the US policy front and the fallout from new tariff regimes.The decision to hold comes despite a sharp moderation in inflation. June's CPI print came in at a 77-month low of 2.1%.Still, the RBI sees risks ahead, revising its full-year CPI forecast for FY26 to 3.1% but anticipating inflation to rise above 4% in the final quarter due to base effects and demand-side pressures.Vijay Kuppa, Director at Bidd, notes that while rural demand, a normal monsoon, and public capital expenditure are supporting the domestic economy, global conditions are once again turning turbulent. 'The US has imposed 25% tariffs on all exports, which could impact India's GDP growth. The RBI has rightly flagged trade negotiation challenges in its forward outlook.'The MPC's neutral stance gives investors clarity: there's no imminent rate hike, but room for further cuts exists if global conditions deteriorate. However, this also signals that the RBI wants to see how the previous rate cuts filter through the broader financial system before acting further.For investors, this could be the final opportunity to lock in attractive yields, whether through fixed deposits or high-quality bonds Kuppa explains, 'FD and bond rates may not fall significantly in the near term, but the risk is clearly to the downside. Banks may continue to pass on earlier rate cuts in the coming months.''Investors should remain diversified, especially with volatility expected to rise due to global trade tremors and election-led uncertainties. For borrowers, the pause may delay further EMI reductions, but the cumulative 100 bps cut this year still offers relief,' he highlighted.Goenka adds that long-end bond yields may remain under pressure, which benefits investors who enter now. 'We continue to see robust growth in the corporate bond market this year—both from the supply and demand side. Interestingly, the RBI acknowledged that large corporations have been agile in tapping bond markets, particularly as the transmission of rate cuts through traditional channels remains slow.': Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
&w=3840&q=100)
Business Standard
4 minutes ago
- Business Standard
WPI inflation dips for 2nd month, hits 25-month low of -0.58% in July
The Wholesale Price Index (WPI)-linked inflation on Thursday stayed negative for the second month in a row at -0.58 per cent in July, due to the decline in food and fuel prices, according to the data from the Ministry of Commerce and Industry. The wholesale inflation during the same period last year was 2.10 per cent, whereas the inflation for June stood at -0.13 per cent. "Negative rate of inflation in July, 2025 is primarily due to decrease in prices of food articles, mineral oils, crude petroleum and natural gas, manufacture of basic metals," the ministry said in a statement. Food articles saw sharper deflation According to the WPI data, food articles recorded a sharper deflation of 6.29 per cent in July, compared with 3.75 per cent in June, led by a steep fall in vegetable prices. Deflation in vegetables rose to 28.96 per cent in July from 22.65 per cent during the last month. Among other categories, inflation in manufactured products inched up slightly to 2.05 per cent in July from 1.97 per cent in June. The fuel and power segment saw a deflation of 2.43 per cent in July, as against 2.65 per cent in the previous month. CPI inflation slowed to 1.55% in July As reported by Business Standard earlier, the retail inflation, measured by the Consumer Price Index (CPI), slowed to 1.55 per cent in July, down from 2.1 per cent in June. The decline was driven by a contraction in food prices, the data showed on Tuesday. This was the ninth consecutive month of easing prices, taking inflation well below the Reserve Bank of India's (RBI's) target band of 2–6 per cent. At 1.55 per cent, it is the lowest print since June 2017, according to data from the Ministry of Statistics and Programme Implementation. Policy rates unchanged, inflation forecast lowered in August MPC The RBI, which tracks inflation for policy decisions, had kept benchmark rates unchanged at 5.5 per cent earlier this month. The RBI's monetary policy committee had revised its CPI-based inflation projections, sharply decreasing estimates for the financial year 2025-26 (FY26), mainly due to softer food prices, a favourable base effect, and easing global commodity costs. The FY26 inflation forecast has been eased to 3.1 per cent, down from 3.7 per cent.
&w=3840&q=100)
Business Standard
4 minutes ago
- Business Standard
India's forex to rise despite RBI support, swap maturity, say economists
India's foreign exchange reserves are expected to have risen in the week through August 8, according to economists calculations based on the Reserve Bank of India's weekly reserve money release. A $5 billion dollar/rupee swap by the RBI matured that week, with bankers saying the central bank delivered the swap, a move that is a drain on reserves. Further, the RBI intervened in both the onshore spot and non-deliverable forward markets that week to prevent the rupee from slipping past its all-time low of 87.95 after US President Donald Trump imposed additional tariffs on Indian goods over the country's purchase of Russian oil. This drain on reserves was balanced out by revaluation effects, economists said. "The rise in FX reserves was fuelled by a revaluation boost of $9.8 billion, reflecting higher gold prices and a weaker dollar," said Gaura Sen Gupta, economist at IDFC First Bank. She estimated that India's reserves rose by more than $4 billion during the week. The official figures will be released on Friday. When RBI sells dollar in the spot market to support the rupee it directly reduces FX reserves, while NDF interventions influence offshore sentiment without an immediate reserves impact. The net dollar selling by RBI in that week was $5.6 billion, which includes maturity of $5 billion swap, Sen Gupta said, which she noted implied spot intervention in the week was less and that the RBI would have relied on NDF. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
India.com
4 minutes ago
- India.com
India's WPI Inflation Falls To 2-Year Low In July As Food Prices Fall
New Delhi: India's annual rate of inflation based on the Wholesale Price Index (WPI) fell further in the negative zone to a two-year low of (-) 0.58 in July this year, compared to the same month of the previous year -- primarily due to a decrease in the prices of food articles and fuels such as petrol, diesel and natural gas, according to data released by the Commerce and Industry Ministry on Thursday. The WPI inflation for July is also lower than the -0.13 per cent that was recorded in the previous month of June. WPI-based inflation has been steadily easing since March and hit a 14-month low of 0.39 per cent in May. There was a 2.15 per cent decline in the food index while the cost of fuels such as petrol and diesel fell by 2.43 per cent during July compared to the same month of the previous year, resulting in the inflation rate turning negative. The decline in WPI inflation is also expected to lead to further easing of retail inflation as the drop in prices of bulk goods is passed on to the retail level and the decline in fuel prices leads to a drop in transport costs. Meanwhile, the country's inflation rate based on the Consumer Price Index (CPI) eased further to 1.55 per cent in July this year compared to the same month of the previous year as prices of food declined during the month. This is the lowest level of year-on-year retail inflation since June 2017, according to a statement issued by the Ministry of Statistics. The retail inflation in July was also lower by 55 basis points than the 2.1 per cent for the previous month of June this year which was the lowest level of retail inflation since January, 2019. Food Inflation in July this year fell into the negative zone at -1.76 per cent as prices declined compared to the same month of the previous year. The significant decline in headline inflation and food inflation during July, 2025 is mainly attributed to favourable base effect and to decline in inflation of pulses, vegetables, cereals, egg and sugar. The inflation rate also fell due to the decline in cost of transport and communication and education. Besides, there was a mild drop in housing inflation during the month. Meanwhile, the Reserve Bank (RBI) has pegged India's CPI inflation at 3.1 per cent for 2025-26 as the steady progress of the monsoon and robust kharif sowing are expected to keep food prices in check. RBI Governor Sanjay Malhotra recently said, 'The inflation outlook for 2025-26 has become more benign than expected in June. Large favourable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of foodgrains have contributed to this moderation.' CPI inflation, however, is likely to edge up above 4 per cent by Q4:2025-26 and beyond, as unfavourable base effects, and demand side factors from policy actions come into play. Barring any major negative shock to input prices, core inflation is likely to remain moderately above 4 per cent during the year, he explained.
