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Below the Reaction Comment RBI Monetary Policy from Amit Modani, Senior Fund Manager, Lead – Fixed Income, Shriram AMC

“The Reserve Bank of India, in its August policy, held the repo rate steady at 5.25%, retaining its neutral stance amid persistent food and fuel inflation risks, with El Niño and oil-price volatility clouding the outlook. RBI Governor said the central bank raised its FY27 GDP growth forecast to 6.7% (from 6.6%) and trimmed its CPI projection to 5% (from 5.1%), but signaled that policy action will remain contingent on greater clarity emerging on the inflation trajectory likely pushing a rate move to the second half of FY27. The stance reflects a measured effort to balance growth momentum with macroeconomic stability.

Easing oil prices, amid rising hopes of a breakthrough in US-Iran talks, have overshadowed the setback from Bloomberg's deferred index-inclusion decision. The overall tone is cautious yet constructive, weighing Middle East and global financial risks against resilient domestic growth and strong FCNR(B) inflows, both of which continue to support system liquidity alongside the government's cash drawdown.

With these crosscurrents in play, and the RBI's cautious, wait-and-watch stance on inflation, the risk-reward continues to favor the short-to-medium end of the yield curve .Higher prevailing yields, combined with supportive liquidity, further enhance the potential for better risk-adjusted returns.”

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