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Below the Perspective on RBI MPC from Siddharth Chaudhary, Head- Fixed Income, Bajaj Finserv Asset Management Limited

“The RBI has chosen to stand still, but not to stand idle.

By holding the repo rate at 5.25% and maintaining a neutral stance, the MPC has delivered what markets broadly expected. However, the decision sits against a backdrop that is becoming more uncomfortable. The growth–inflation trade-off is no longer benign: inflation for FY27 has been revised up to 5.1%, while growth has been marked down to 6.6%. That combination of higher prices, weaker momentum, is not yet alarming, but it is certainly less forgiving than a few months ago.

What stands out is not the decision on rates, but what came with it. Instead of using monetary policy to respond to external pressures, the RBI has instead leaned on the measures to improve balance of payments. Expanding the FAR universe to include longer-dated government bonds and removing frictions on foreign participation are not mere technical tweaks, they are an attempt to structurally deepen India’s access to global capital. When combined with the government’s tax relief on foreign bond investments, the signal is clear: the door is being opened wider and made more attractive.

The supporting measures are consistent with this theme. Incentives for FCNR(B) deposits, including temporary hedging cost absorption, and a concessional forex swap window for PSU ECB borrowings, add incremental channels for dollar inflows. None of these, in isolation, is decisive; together, they amount to a coordinated effort to strengthen external financing without disturbing the rate path.

For markets, the near-term implications: The front end of the curve should rally from the status quo on rates, while the ultra-long end may benefit from anticipated foreign demand under FAR. But that optimism comes with a caveat. The sharper upward revision in inflation is not easily ignored, and it quietly keeps the possibility of rate hikes alive.

So, the RBI waits, but it waits with inflation rising, growth softening, and the external environment still unsettled. That is not a comfortable place to be.”

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