MUMBAI: India’s bond markets received a much-needed boost on Friday after the Reserve Bank of India’s Monetary Policy Committee (MPC) kept key policy rates unchanged in its October 2025 meeting and hinted at the possibility of future easing, offering relief to investors after months of uncertainty.

While the RBI maintained its neutral stance, the tone of its communication marked a clear shift. For the first time since the surprise stance change in June, the central bank acknowledged that inflation is now undershooting earlier projections – helped by recent GST cuts – and is expected to remain close to target through the coming year.

That recognition has revived optimism in the fixed income space, which had been under sustained pressure despite favourable macro indicators like easing inflation, low borrowing costs, and softening credit growth.

Clear signal to markets

According to Suyash Choudhary, Head – Fixed Income at Bandhan AMC, the most notable takeaway from the policy was the RBI’s open acknowledgment that there is now room for future monetary easing – even though the MPC has chosen to wait and assess the effects of recent fiscal and monetary support measures.

“Two external MPC members even proposed a shift from a neutral to an accommodative stance,” Choudhary noted, underlining the growing internal consensus on the possibility of rate cuts ahead.

This subtle policy pivot, though cautious, has helped stabilise sentiment across the bond curve, especially in medium-duration segments. Market participants now widely expect the next rate cut to come as early as December.

A market in recovery

Bond markets had been rattled since June, when the RBI unexpectedly shifted its stance without offering clear forward guidance. That, coupled with a surge in state development loan (SDL) supply, led to sharp upward pressure on yields and a broader loss of confidence.

“What began as a long-duration supply imbalance turned into a deeper issue of apathy across the bond market,” Choudhary explained.

Even typically favoured segments like the 5-year maturity bucket came under pressure. Against this backdrop, Bandhan AMC has shifted its positioning to go overweight in the 6–9 year segment of government securities – a part of the curve that is now seen as offering compelling risk-reward.

The October policy has rekindled interest in bond with intermediate maturities (5–9 years), which appear well-placed both from a valuation and demand-supply standpoint. While long-end yields remain under pressure from continued SDL supply, a steepening of the curve is expected – with short- to mid-term bonds likely to benefit the most from any future rate cuts.

In addition, corporate bond spreads remain elevated, as high SDL issuance continues to offer an attractive alternative to investors looking for yield.

Macro stability

The RBI’s communication also underlined India’s strong macro fundamentals and the central bank’s readiness to act if external growth risks intensify. Choudhary noted that fiscal and monetary authorities are now better placed to respond in a coordinated and calibrated manner – a key to sustaining macroeconomic stability.

Significantly, the fiscal framework will evolve next year to focus on medium-term debt-to-GDP targets, rather than annual fiscal deficit caps. This structural shift provides the government with more flexibility while maintaining policy credibility – a positive for debt markets.

With the policy sending a stabilising signal, Choudhary believes the time for broad-based “blunt” duration trades is now behind us. Instead, he suggests a more selective approach, particularly in the 6–12-year segment, where the combination of steep valuations and policy support could generate better returns.

“Investors have largely stayed away over the past few months. But with the RBI now applying a soothing balm through both words and data, and with valuations having cheapened meaningfully, the case for re-engagement in fixed income is strengthening,” Choudhary said.

In summary, by keeping rates on hold but shifting its tone, the RBI has not only calmed bond market nerves but also opened the door to a more supportive policy cycle – reviving interest across a market that had been struggling to find its footing.