In a move aimed at increasing growth amid global uncertainties, the Reserve Bank of India (RBI) cut the key policy rate by 25 basis points and shifted its stance to 'accommodative'. This policy pivot sets the stage for sustained positive momentum in fixed-income markets. Despite lingering concerns over potential global disruptions, particularly surrounding tariff tensions, the RBI's forward guidance hints at further rate cuts in the near term.

Speaking to Fortune India, Mahendra Kumar Jajoo, CIO – Fixed Income at Mirae Asset Investment Managers (India) Pvt Ltd, noted, “It appears that in this uncertain environment, the central bank is once again prepared to do the heavy lifting—much like it did during the COVID disruption—offering a supportive backdrop for fixed income in the near term.

He further believes the indications are that there may be two more rate cuts in the current cycle. So, you may expect the repo rate to come down to maybe 5.5%.

Q. With global risk like the tariff war in play, how vulnerable is the Indian bond market to external shocks despite domestic easing and what hedging or diversification strategies would you recommend?

A. If you look at the key message from the policy, as far as I am concerned, due to the global disruption, there is going to be an impact on the growth, there is likely to be some impact on the currency, and there is possibly some impact on the liquidity. And much like during the COVID time, it is clearly the RBI's guidance that it will do the heavy lifting through the monetary policy to tide over that situation. So, therefore, on one hand, if you have a global disruption leading to an attack or impact on these three factors, it will be the Reserve Bank policy which will stand to fight those situations and then on the other side, if you have a happier situation where you have the low inflation, falling commodity prices, and, the strong macro, then also the policy will be on the accommodative side.

So, right now, I think the RBI's policy specifically addresses the global disruption. And to that extent, I think it is constructive for the fixed income.

Q. Given the accommodative stance and liquidity surplus measures like Open Market Operations(OMOs), how should fixed-income investors reposition their portfolio, particularly across the yield curve and credit spectrum to benefit from the evolving interest rate and environment?

A. As per the policy guidance, there are more rate cuts likely in the coming policies and the yield curve is still very steep, especially between 10 to 30 years. The spreads are above 40 basis points, which is high compared to the historical standards. So, therefore, the long-duration category of debt funds is still worth considering for investors in line with their risk appetite and their risk profile. So, that is something that the investors can look at. The long-duration category still looks very appealing for investors in line with the current guidance.

Q. The RBI appears to be taking a proactive role in managing financial conditions. So, in your view, how sustainable is the approach if inflation risk re-emerges and what indicators should investors track to anticipate a shift in policy tone?

A. So, if the inflation surges again, then obviously, the Reserve Bank will have to reconsider its stance. At this point, I do not think there is anything to suggest that there is any serious threat of escalation in this inflation situation. The indications will obviously be two. One, if there is a strong upsurge in the global commodity prices, that is not the case right now. We have seen the crude at, you know, very low levels and so on. So, therefore, at this point, there is not any major threat. But then if you have, any indication of a surge in the global commodity prices, that would be the first sign that inflation may be of concern. But I think in the big picture right now, inflation is not a very serious threat. So, as of now, this looks like sustainable for the next six months. So, this momentum should continue for at least the next six months.