Quote on RBI MPC Announcement by Mr. Siddharth Chaudhary, Head- Fixed Income, Bajaj Finserv AMC
Below the Quote on RBI MPC Announcement by Mr. Siddharth Chaudhary, Head- Fixed Income, Bajaj Finserv AMC
“The Monetary Policy Committee (MPC) delivered surprises on three fronts. First, it implemented a 50-basis point rate cut, exceeding market expectations of a 25-basis point reduction. This move aims to support the economy amid rising trade uncertainties and easing inflationary pressures. Second, the MPC shifted its monetary policy stance from “accommodative” to “neutral”, with the Governor emphasizing that future actions will be guided by incoming data. Third, a 100 bps CRR cut.
Prior to the policy announcement, we had highlighted a strong likelihood of a 50-basis point cut, noting that any further easing would depend on a significant deterioration in global growth and trade conditions. With today’s decision, short- to medium-term bonds are expected to perform well, supported by a substantial liquidity surplus following a 100-basis point cut in the Cash Reserve Ratio (CRR). Core liquidity surplus is now projected to be around INR 8 trillion. However, as market expectations approach the terminal rate, profit booking is evident in longer-term bonds.
It is also worth noting that the pre-policy real interest rate of 2% was relatively high, especially in the context of heightened global uncertainties. Given the domestic growth-inflation dynamics, a more accommodative stance was justified to sustain economic momentum. With the FY26 inflation forecast revised downward to 3.7% from 4%, the real interest rate now stands at 1.8%, which remains elevated. Going forward, further rate cuts will only be feasible if inflation projections decline further in upcoming policy reviews.”
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