The Reserve Bank has kept the repo rate unchanged at 5.25 per cent and held its ‘neutral’ stance for a third meeting running, an outcome that was largely priced in. But the reasoning matters. Having already cut 125 basis points since February 2025, the RBI sees limited room to support growth, and would rather let those cuts work through the economy than add stimulus when inflation is being shaped by forces beyond India’s control.
Those forces are largely external. The West Asia conflict has pushed crude higher and straight into domestic prices, while the rupee has slid to near record lows around 95.80 per US dollar after touching close to 97 in May, with the RBI intervening to defend it. Add a weak monsoon, and the low inflation of recent quarters looks more like a phase ending than the new normal. With FY27 inflation projected at 5.1 per cent, the risks are tilted higher.
The more telling contrast is between what the RBI is doing on rates and on liquidity. Just before the policy, it injected ₹17,445 crore into the banking system through a variable rate repo auction. So even as it holds the rate to defend the currency and anchor inflation expectations, it is keeping liquidity ample enough for credit to flow. The 10-year bond yield near 7 per cent shows a market that has accepted rates are not falling soon. That mix says more about the RBI’s intentions than the headline number does. READ | RBI widens FAR, unveils other measures to attract foreign capital
A move on the fiscal side pushes the same way. The government has promulgated an ordinance that, with effect from April 1, 2026, foreign institutional investors will be exempted from tax on both the interest and the capital gains they earn on government securities. Aimed at reversing this year’s heavy outflows and steadying the rupee, it sharply lifts the post-tax return on Indian sovereign debt. If it draws foreign money back into the bond market, it could ease both yields and the currency in a way the RBI’s liquidity operations alone cannot.
For investors, the takeaway is clearer than it looks. Much of the market is waiting for the next rate cut, and I would not build a strategy around it. When money stays costlier for longer, the companies that do well grow on real demand, capacity and pricing power, not cheap borrowing. At INVasset, we still prefer the capex and energy side, including power, metals and the intermediaries that gain as market participation rises, and are cautious on rate-sensitive consumption names that need falling rates.
Also Read
What comes next is largely a second-half FY27 question that depends on where oil and the rupee settle. If both calm down, the RBI can stay on hold. If they don’t, a rate hike, that once looked unlikely, becomes a real possibility, and that is what I would want a portfolio prepared for. The job now is not to wait for relief from the RBI, but to own businesses that do well whether or not it comes.
======================
Disclaimer: Harshal Dasani, Business-Head for PMS, INVAsset PMS. Views expressed are his own.
aniltikotekar4sme.com 