Note to fixed income investors – Apr 2026

As per the consensus view, the Monetary Policy Committee (MPC) has unanimously decided to keep the rate unchanged at 5.25% marking the second consecutive hold after the February pause. Correspondingly, the Standing Deposit Facility (SDF) rate has been kept unchanged at 5.00%, and the Marginal Standing Facility (MSF) rate and the Bank Rate kept unchanged at 5.50%. The MPC also decided to continue with the neutral stance and retaining its cumulative easing to 125 bps in 2025. This decision comes amid a materially more uncertain global backdrop, with the RBI explicitly calling out West Asia conflict–driven supply-chain disruptions, higher commodity/energy volatility, and a more fragile global growth-inflation trade-off, reinforcing the “wait-and-watch” posture.

Full FY26, RBI has injected durable liquidity worth INR 13.0 trillion including OMO purchases., buy/sell swap, and CRR cut. As of April, durable liquidity is in surplus of ~1.84 trillion INR. The RBI framed the macro shock primarily as a supply shock (energy, freight/insurance costs, and disrupted trade routes), implying that the near-term response is less about rate moves and more about maintaining market stability and transmission. In the post policy press conference, the Governor highlighted that India's macroeconomic fundamentals remain "very strong and very resilient” and that real time transmission on lending rates are seen at around 90 bps out of the 125 rate cuts, which is healthy.              

RBI new CPI series (2024=100) now in place, RBI has laid out a full-year FY27 inflation trajectory at 4.6% (Q1: 4.0%, Q2: 4.4%, Q3: 5.2%, Q4: 4.7%) compared to Q1FY27/Q2FY27 at 4.0%/4.2% in the previous policy.

RBI has upgraded its FY26 growth assessment to 7.6% (Second Advance Estimates) versus 7.4% in the Feb First Advance Estimates. The full-year FY27 GDP growth at 6.9% with quarterly path Q1: 6.8%, Q2: 6.7%, Q3: 7.0% and Q4: 7.2% compared to Q1: 6.9%, Q2: 7.0% in the previous policy.

MPC’s neutral stance and tone of the commentary augmented the sentiments and 10-year G-sec prices rose, yields settling at 6.91% versus the previous close of 7.03%. Short-term rates (3 months – 12 months) also corrected by ~20 to ~25 bps, following the G-sec market.

 The term spread between the 3-month T-bill and the 10-year G-sec is now ~150 bps, above to the long-term average of ~120 bps.

Strategy for Fixed Income Investors

• With the decline in G-sec yields over the past twenty months, our overweight stance on duration has played out reasonably well and continue to focus on carry. As highlighted in previous notes, we shifted to a neutral stance and continue to expect limited capital gains from further rate declines. Long-term yields may remain sensitive to evolving growth-inflation dynamics, demand-supply balance in the borrowing program and event-driven swings, especially around oil and geopolitical headlines.
• Corporate bond spreads remain adequate, with AAA spreads still above long-term averages. In select cases, AA and A-rated bonds offer attractive spreads after adjusting for risk. Investors with a higher risk appetite may consider evaluating select high-yield strategies.

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