However, the central bank’s communication marked a significant shift, restoring market confidence after months of uncertainty.
According to Suyash Choudhary, Head – Fixed Income at Bandhan AMC, the RBI acknowledged that inflation is undershooting projections following the GST cut and is expected to remain close to target in the coming year.
The RBI’s MPC kept policy rates unchanged at 5.5% in its October 2025 review, maintaining a neutral stance while signaling room for future easing. Experts say the move restores market confidence, stabilizes borrowing costs, and supports bond market sentiment. With growth forecasts revised higher and inflation near target, selective exposure in 6–12 year maturities is recommended for investors.
At the same time, growth estimates were revised higher, reflecting India’s strong GDP performance, though the central bank flagged risks from global uncertainties.
“Most importantly, the room for further easing is explicitly acknowledged, even as the MPC has chosen to wait for now for the monetary and fiscal easing conducted thus far to play through,” Choudhary noted. He added that two external members of the MPC had even suggested shifting the stance from neutral to accommodative.
Bond Market Relief
Markets had been rattled since the abrupt stance change in June, which, combined with heavy state development loan (SDL) supply, triggered sustained pressure on bond yields.
“What started as a problem of long-duration supply has morphed into a much wider issue of generalized apathy towards buying bonds,” said Choudhary.
Despite falling inflation, low funding rates, and slowing credit growth, sentiment in fixed income had remained subdued. This even impacted the 5-year segment, traditionally a favored trade in an easing cycle. Against this backdrop, Bandhan AMC has gone overweight on the 6-9 year segment of government securities in its active duration and gilt funds.
Expectations of a Rate Cut
With the October policy, market expectations for the next rate cut, likely in December, have revived.
“This should bring back interest in the bond market, especially in the 5-9 year maturities, which are well poised from a valuation standpoint,” Choudhary explained.
He expects the yield curve to steepen, as long bond yields remain capped but floors have moved higher due to sustained supply pressures. Large SDL issuances continue to offer attractive alternatives for long-term investors, keeping corporate bond spreads elevated in the near term.
Macro Stability and Policy Coordination
Choudhary highlighted that if external growth headwinds intensify, both monetary and fiscal policy are likely to respond in a calibrated manner, preserving macroeconomic stability.
Importantly, from next year, the fiscal framework will shift to targeting medium-term debt-to-GDP ratios rather than annual fiscal deficits, offering more flexibility while retaining credibility.
A key takeaway from the Governor’s statement, Choudhary said, was the emphasis on coordinated policy action:
“As India strives towards achieving Viksit Bharat by the centenary year of its independence, it would need the coordinated support of fiscal, monetary, regulatory, and other public policies to attain its goal.”
Investment Outlook
From an investment perspective, Choudhary believes the time for “blunt” duration trades is over. Instead, optimizing duration through selective exposure – particularly in the 6-12 year maturity bucket-could offer the best participation in the next phase of the bond market rally.
“Investors have been largely on the sidelines over the last few months, but with today’s policy applying the proverbial soothing balm and valuations having cheapened substantially, appropriate strategy selection based on investment horizon and risk appetite may now be considered again,” he concluded.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times)
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