RBI MPC: Can a Rate Cut Push 10-Year G-Sec Yields Below 6.4%? What It Means for Your Bond Portfolio

The Reserve Bank of India’s December monetary policy committee (MPC) meeting is shaping up to be one of the most closely watched events in the bond market this year. After delivering 100 basis points of cumulative rate cuts over the past three policy reviews — including a sharp 50 bps cut in June — the RBI has already taken the repo rate down to 5.5%.

Now, with inflation at a 13-year low and growth holding firm, investors are keen to know: Will the central bank push for another rate cut, and could this drive the 10-year G-Sec yield below 6.4%?

A move like this could materially boost bond portfolio returns through strong mark-to-market gains. But the MPC must weigh the balance between supporting growth and ensuring inflation remains well anchored.

Why Inflation Is Opening the Door for Further Easing?

October’s inflation figures have become a turning point in policy expectations. Headline CPI has fallen sharply, driven mainly by moderating food prices as supply conditions improved.

With inflation now sitting comfortably inside the RBI’s 2–6% tolerance band — and well below its 4% target — the disinflation trend is giving policymakers room to consider another calibrated rate cut.

Markets expect that, in a low-inflation environment, the RBI could shift more focus toward growth support without jeopardising price stability. Investors are particularly sensitive to the signal such a move would send. Even a 25 bps cut or a distinctly dovish tone would be enough to trigger a meaningful repricing in the bond market.

Global Easing Cycle Strengthens the Case

Global macro trends are also aligning in the RBI’s favour. Major central banks, including the US Federal Reserve, are turning toward an easing cycle.

This reduces global rate pressure on emerging markets like India and gives the RBI more space to cut rates without risking currency volatility or large capital outflows.

Market participants believe that if the US Fed eases, a 25 bps cut by the RBI would fit neatly into the global setting. Some analysts view the potential December cut as a final, fine-tuned step in the ongoing easing cycle.

Governor’s Commentary Already Moving Markets

Recent remarks from RBI Governor Sanjay Malhotra, hinting at “scope to ease,” have already influenced market pricing. Bond markets are notoriously forward-looking, and even subtle changes in guidance can shift yields.

A single dovish phrase can trigger instant repricing at the long end of the yield curve. This is why traders expect that the December meeting could spark a rally, even with minimal action — provided the communication is clear.

Also Read: Rupee Hits New Record Low of 89.92 Against US Dollar: What Lies Ahead?

How a Rate Cut Pushes G-Sec Yields Lower?

The mechanics are straightforward:

• A rate cut reduces banks’ funding costs.

• Cheaper borrowing rates make existing bonds with higher coupons more attractive.

• Demand for these bonds rises.

• Prices increase → yields fall.

For the benchmark 10-year G-Sec, this process can unfold quickly. If the MPC signals further easing, the market could tighten the term premium and potentially drive the yield below 6.4%.

This would result in instant mark-to-market gains for investors holding long-duration government and high-grade corporate bonds.

Why Maybe NOT Cut: Strong Growth and Market Behaviour?

However, there is a strong counter-argument to waiting.

Even after the governor’s dovish comments, 10-year yields climbed above 6.5%, suggesting traders are not pricing in a near-term cut.

Recent macro numbers add weight to this view:

• India’s Q2 FY26 GDP grew at 8.2%

• Corporate earnings remain healthy

• Demand indicators have strengthened

This mix of robust growth and low inflation forms a goldilocks scenario for policymakers. In such a balanced environment, central banks often prefer not to disrupt the equilibrium.

A pause would also help the MPC validate whether the ongoing disinflation trend is sustainable.

Portfolio Impact: What Retail Investors Should Expect

The two scenarios offer clear outcomes for investors.

If the RBI Cuts Rates or Turns Dovish

• Bond prices are likely to rally

• Long-duration funds and G-Secs may see strong capital gains

• Investors with laddered portfolios will benefit from both higher prices and stable coupon flows

• Benchmark yields may fall below 6.4%

If the RBI Holds Rates

• Yields remain near current levels

• Attractive coupon income continues

• Limited capital appreciation

• Ideal for conservative investors who want predictable returns

Regardless of the outcome, analysts recommend diversifying maturities and credit exposure. Bonds can generate both income and capital gains, especially during shifting rate cycles.

Bottom Line

The December MPC meeting could become the next pivot in India’s interest-rate cycle. With the repo rate already at 5.5%, the RBI faces a strategic choice:

• Cut further to reinforce growth support, or

• Pause to ensure disinflation remains durable.

Each path will send a clear signal to the bond market — and your portfolio. Retail investors should stay informed and maintain a well-structured fixed-income allocation to make the most of whichever direction the MPC chooses.

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