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Below the Commentary on MPC Policy by Avnish Jain, Chief Investment Officer (CIO) - Fixed Income, Canara Robeco Asset Management Company

"Reserve Bank of India’s (RBI) Monetary Policy Committee, as largely expected, kept repo rate status quo, while maintaining stance at neutral. The growth forecast was reduced to 6.6% while inflation forecast was raised to 5.1% (from 4.6% in the previous policy). The Governor acknowledged that the global situation is keeping the outlook clouded with escalating energy prices and supply disruptions. RBI expects the fuel price to add 0.36% to CPI (Consumer Price Index) inflation in the coming months. Further, fuel price hike may add further to inflation numbers. The Governor noted that economy remained resilient but with global uncertainty and food price outlook remaining cloudy on monsoon forecast, economic growth is likely to slow. RBI is likely to maintain wait and watch approach and remain data-dependent in upcoming policy meetings.

To shore up FX (Foreign Exchange) resource, RBI announced a slew of measures including concessional FX swaps, raised External Commercial Borrowings (ECBs) till 30 Sep 2026, as well as absorption of full hedging costs on Foreign Currency Non-Resident Bank (FCNR B) deposits raised (till 30th Sep 2026). In lockstep with RBI measures, the GoI (Government of India) announced full tax exemption on capital gains and interest on government securities. This may attract foreign investors in G-Secs (Government Securities) over a period of time, improving FX inflows and curb further depreciation in INR vis-à-vis the USD.

Overall, the market sentiment improved due to above measures, with 10Y G-Sec yields falling by about 3-4 bps. However, with inflation projections (by RBI) at 5.7% in 2HFY2027, it is expected that rate hikes could start from October onwards. We expect markets to move sideways with 10Y GSEC moving in range of 6.90%-7.05%."

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