The Reserve Bank of India (RBI) reduced the policy repo rate by 25 basis points to 6.0%, marking the second consecutive rate cut after February 2025.
A significant change was the shift in the monetary policy stance to accommodative, reflecting a proactive approach to supporting growth while remaining vigilant on inflation.
TL: DR
In its April 2025 meeting, the Monetary Policy Committee (MPC) reduced the policy repo rate by 25 basis points to 6.00%, marking the second consecutive rate cut after February 2025. The standing deposit facility (SDF) and the marginal standing facility (MSF) rates were adjusted to 5.75% and 6.25%, respectively.
A key development was the shift in monetary policy stance from ‘neutral’ to ‘accommodative,’ reinforcing the RBI’s intent to actively support growth in the face of rising global trade frictions and a weakening external environment. The downward revision in inflation projections to 4.0% for FY2025-26, combined with a softening trend in food and commodity prices, has provided the RBI with room to pivot its focus more firmly towards growth. On the other hand, the GDP growth forecast for FY2025-26 has been moderated to 6.5%, reflecting the increasing risks from external demand slowdown and global policy uncertainty.
While near-term inflation risks appear contained, the RBI is likely to maintain an accommodative bias to nurture the growth recovery. The possibility of further rate cuts cannot be ruled out going forward, depending on the evolving global and domestic macroeconomic conditions.
Overall, the policy outcome aligns with our view that the RBI would prioritize growth support while ensuring macroeconomic stability amid heightened global volatility.
Inflation outlook: Cautious but balanced
Inflation projections have been revised downward, with CPI inflation for FY2025-26 now projected at 4.0%, compared to 4.2% earlier.
| Period | Feb 2025 | April 2025 |
| FY26 | 4.2% | 4.0% |
| Q1FY26 | 4.5% | 3.6% |
| Q2FY26 | 4.0% | 3.9% |
| Q3FY26 | 3.8% | 3.8% |
| Q4FY26 | 4.2% | 4.4% |
Source: RBI, Fisdom Research
The sharp moderation in headline inflation over the past few months, led by a correction in food prices and easing fuel costs, has improved the near-term inflation outlook. Favorable rabi crop arrivals and declining global crude oil prices have helped anchor inflation expectations more firmly.
The risks of inflation, however, are not fully behind us. Upside risks persist from potential adverse weather events, volatility in global commodity prices, and supply-side pressures in select food categories.
In our view, the inflation trajectory appears better anchored, but continued vigilance is warranted. With the RBI shifting its stance to accommodate, further monetary easing remains a possibility if inflation continues to evolve favorably and external conditions remain supportive.
Growth outlook: Recovery continues amid global headwinds
For FY2025-26, GDP growth is projected at 6.5%, supported by resilient domestic drivers. High-frequency indicators suggest continued recovery in manufacturing activity, steady momentum in the services sector, and bright prospects for agriculture, aided by healthy reservoir levels and robust rabi output.
| Period | Feb 2025 | April 2025 |
| FY26 | 6.7% | 6.5% |
| Q1FY26 | 6.7% | 6.5% |
| Q2FY26 | 7.0% | 6.7% |
| Q3FY26 | 6.5% | 6.6% |
| Q4FY26 | 6.5% | 6.3% |
Source: RBI, Fisdom Research
While domestic consumption and investment activity continue to provide support, the RBI has flagged that global trade frictions, tariff escalations, and external demand slowdown could weigh on net exports and overall growth momentum.
We believe that the strength of India’s domestic economy, particularly agriculture, manufacturing, and services, will remain the primary growth engine. However, heightened global uncertainties and financial market volatility could introduce intermittent headwinds to the recovery path.
Overall, while the outlook for growth remains positive, it is tempered by rising external risks, warranting close monitoring of global developments.
Liquidity Conditions: Return to surplus
System liquidity, which was in deficit earlier this year, has gradually improved following a series of RBI measures. After peaking at a deficit of ₹3.1 lakh crore in January 2025, the Reserve Bank injected about ₹6.9 lakh crore through open market operations (OMOs), variable rate reverse repos (VRRRs), and forex swaps. Supported by increased government spending towards the end of March, the system moved back into surplus, standing at approximately ₹1.5 lakh crore as of early April 2025.
The weighted average call rate (WACR) softened and realigned closer to the repo rate, while money market spreads also narrowed, indicating improved liquidity conditions. Going forward, the RBI has reiterated its commitment to proactively manage liquidity to ensure monetary policy transmission and financial stability.
Way Forward
With inflation expected to stay aligned close to the 4% target and growth facing headwinds from a volatile global environment, the RBI has clearly shifted its focus towards nurturing domestic growth.
The move to an accommodative stance signal that, absent any major shocks, the central bank is inclined either to hold rates or reduce them further if the situation permits. Going forward, we expect monetary policy decisions to remain data-dependent, with particular attention to evolving inflation trends, monsoon outcomes, and external risks arising from global trade frictions.
Liquidity conditions have normalized and are likely to remain supportive of monetary transmission. Financial stability remains strong, providing the RBI with additional flexibility to respond swiftly if conditions deteriorate.
In our view, while further rate cuts cannot be ruled out, the RBI is likely to proceed with caution, balancing the need to support growth with the imperative of keeping inflation expectations well anchored. The evolving domestic and global environment will remain the key variables shaping the monetary policy trajectory over the coming quarters.
Fixed Income Strategy: Positioning for a softer rate environment
With the RBI cutting rates for the second consecutive meeting and adopting an accommodative stance, the interest rate cycle has clearly turned. Investors should consider realigning their fixed income portfolios to take advantage of the evolving landscape.
At Fisdom Research, we have been consistently reiterating our preference for building duration in fixed income portfolios since the RBI paused its rate hiking cycle. The recent monetary policy actions validate this stance, and we believe a duration-oriented approach remains well-suited for the current phase.
Where Should Investors Focus Now?
The focus should shift towards categories that benefit from a declining interest rate environment.
- Dynamic bond funds, medium to long-duration funds, and high-quality corporate bond funds are well-positioned to capture potential gains from falling yields.
- Investors preferring a lower-risk approach may also consider short-term bond funds.
However, for those willing to take some measured interest rate risk, longer-duration categories appear favourable at this phase of the cycle.
What Strategy Should Investors Follow Post the MPC Outcome?
Following the 25-basis point rate cut and accommodative shift, investors should gradually tilt their fixed income allocation toward duration-focused strategies.
- Building exposure through dynamic bond funds or medium-to-long duration funds can help benefit from potential further easing.
- Systematic Transfer Plans (STPs) into such funds can smoothen entry and manage volatility better.
- Maintaining a core allocation to high-quality, shorter-duration funds ensures liquidity and portfolio stability even as investors take incremental duration bets.
A horizon of three years or more is advisable to fully capture the potential capital gains from a declining rate cycle.
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