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The Reserve Bank of India delivered no surprises on Friday, but its signals carried weight for fixed-income markets. The MPC has kept its neutral stance between inflation fears and growth support, with Governor Sanjay Malhotra announcing the repo rate will stay unchanged at 5.25% for the third straight meeting.
For bond markets, the hold was expected, but the context was not entirely benign. With FPI outflows of ₹2.47 lakh crore year-to-date, the rupee having touched record lows near ₹97 per dollar in May, and crude oil prices remaining elevated due to ongoing Strait of Hormuz disruptions, the RBI judged this was not the moment to commit to further easing.
What Relaxed FPI Rules Mean for India’s Bond Market
The most defining announcement for debt markets came alongside the rate decision. To support foreign capital inflows, the RBI announced a relaxation in FPI norms for investing in government securities, along with the government’s move to make India’s debt market more attractive through tax exemptions for foreign investors in Indian bonds. The move is a direct effort to relieve the pressure on yields since the West Asia conflict and signals that policymakers are increasingly aware that overseas participation in India’s debt market cannot be taken for granted.
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RBI Maintains Neutral Stance and Keeps Rates at 5.25%
The RBI projected CPI inflation at 5.1% and core inflation at 7.4%, while warning of upside risks from global supply chain disruptions. GDP growth for FY27 was pegged at 6.9%, with the MPC noting risks on both sides.
The neutral stance tells you the RBI is sitting on the fence: not ready to cut rates further, but not worried enough about inflation to start hiking either. For bond traders, that means yields will be driven more by incoming inflation data and how the West Asia conflict unfolds than by anything the RBI does in the near term.
