The decision was unanimous. The inflation stock for FY26 was reduced to 3.10% earlier from 3.70% earlier, while the GDP growth fever was retained at 6.50% for FY26. The prediction for CPI inflation for Q1FY27 is given at 4.90%, while for GDP growth it is 6.60%.
The MPC statement emphasized ‘core inflation’, while mentioning that the Lower Headline CPI is currently being observed, mainly due to volatile food prices, especially vegetable prices.
The bond market of India undergoes a considerable transformation and becomes more accessible for retail investors. The reforms of SEBI, including reduced minimum investments and the introduction of online bond -bond -seekers, have democratized bond investment democratized. Retail investors now allocate more than $ 3 billion to listed bonds every year, with innovations such as bond baskets and auto-reinvestment functions that improve the user experience.
What is even more important, with the 1-year-old future-oriented inflation at 4.90% (for Q1FY27) predicted considerably above the target in the medium term of 4%, together with the predicted growth of 6.60% for Q1FY27, the beam for further rate reductions is higher.
The MPC remains optimistic about growth, as it states in its statement: “Interior growth remains resilient and broadly evolves in the lines of our assessment. Private consumption, helped by demand in the countryside and fixed investments, supported by a Capex of the government, continues to stimulate economic activity.
On the supply side, a steady southwestern monsoon supports the sowing of Kharif, supplementing reservoir levels and stimulating agricultural activity. Moreover, the service sector and construction activity remain robust. “Furthermore, the declaration of growth, the statement states that” the aforementioned southwestern monsoon, lower inflation, rising capacity use and congenial financial circumstances continue to support domestic economic activity. The service sector is expected to remain floating, with continuous growth in construction and trade in the coming months. “
However, it warns of the external environment, whereby the MPC declaration states that “prospects for external demand remain uncertain in the midst of current rate announcements and trade negotiations. The headwind that comes from long -term geopolitical tensions, persistent global uncertainties and volatility in worldwide financial markets.”
The MPC statement concluded by stating that “the MPC decided to keep an accurate wake of the incoming data and the developing dynamics of the domestic growth influence processing to map the right monetary policy path.”
In our opinion, the MPC has therefore transferred a message of robust growth, along with stable inflation, with some uncertainties with regard to global growth in the midst of the current geopolitical environment. The MPC remains data dependent and can respond to evolving data and has not closed the door with a future speed reduction.
Market reaction
The bond markets expected a break together with a DOVISH tilt, given the current and expected lower inflation, with a minority section of the market that expected a tariff reduction.
The market noticed that the policy statement tended to Hawkishness, and as a result the bond returns were about the curve. The return of the benchmark 10-year bonds ended the day at 6.42%, an increase of 8 BPS during the day.
Our vision: yields to stay rangedbound
We believe that both growth and inflation can surprise the disadvantage, which can open the space for another 25 BPS speed reduction in the quarter of October -Dec.
The critical factor will be the evolution of RBI’s projection of CPI inflation for Q1/Q2 FY27 in the future, and any downward revision can open space for incremental speed reductions – especially given the current global geopolitical uncertainties and some signs of domestic delay.
The bond returns have risen since the MPC meeting in June, and with the current MPC language the pressure on the revenues can be expected in the short term.
However, we think that the 10-year bond return at 6.50% or higher offers an attractive tactical opportunity to increase the duration, because we believe that growth together with inflation will surprise the disadvantage.
We think that the yields will move in a range of 6.25% in a range of 6.25% to 6.60% in the course of the coming months.
We believe that corporate bonds perform better than a horizon in the medium term, and corporate bonding funds with a maximum duration of 5 years offer an attractive investment option from a risk/reward perspective. Long duration can be used tactically.
Investors with an investment horizon of 12-18 months can look at funds of corporate bonds, given the attractive spreads in the midst of abundant liquidity. Investors with an investment horizon of 6-12 months can look at money market funds, because the current 1-year returns offer attractive Carry and Roll-down.
(The author is with a head income, PGIM India Investment Fund)
((Indemnification: Recommendations, suggestions, views and opinions of experts are their own. These do not represent the views of economic times)
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