RBI cuts repo rate: What should debt investors do?

Summary: Following the rate cut, experts suggest that investors should continue to focus on investing in portfolios positioned at the short end of the curve, such as low duration, money market, and liquid funds over the next two–three months.

After holding the repo rate steady in its previous policy review, the Reserve Bank of India (RBI) has now delivered a 25-basis-point cut, bringing the policy rate down to 5.25 per cent.

Further, the Monetary Policy Committee (MPC) maintained a neutral stance, noting that the benign inflation outlook continues to provide space to support growth momentum.

In the previous policy, the RBI had emphasised that inflation had eased sharply but preferred to remain cautious due to global uncertainties and tariff-related risks. Since then, domestic indicators have strengthened further. India’s GDP rose 8.2 per cent in the second quarter of the current financial year, driven by resilient consumption, improving private investment sentiment, and robust performance in the industrial and services sectors.

The RBI said today’s rate cut aims to reinforce this momentum and ensure financing conditions remain conducive, even as global inflation dynamics remain uneven and equity markets remain volatile.

What should debt investors expect?

With the RBI delivering a 25-basis-point rate cut and signalling continued policy support for growth, debt market positioning becomes crucial for investors. According to Deepak Agrawal, CIO–Debt at Kotak Mahindra AMC, the central bank is likely to enter a prolonged pause after this move. The market has reacted positively, with the 10-year G-sec yield easing by three basis points to around 6.48 per cent, reflecting confidence in the policy trajectory.

Edelweiss Mutual Fund noted that the longer end of the yield curve may stay volatile in the near term, while the shorter end stands to gain the most from current conditions. The yield curve has steepened meaningfully post-policy, making short-duration strategies more attractive.

Against this backdrop, investors should continue to focus on investing in portfolios positioned at the short end of the curve, such as low duration, money market and liquid funds over the next two–three months, added the note from Edelweiss Mutual Fund.

Also read: No repo rate cut, but RBI leaves door open