Falling Repo Rates Create Strategic Window for Fixed Income Investments
With the Reserve Bank of India’s recent policy decision shifting its stance from “neutral” to “accommodative” and reducing the repo rate by 25 basis points on April 9, fixed income investors are seeing renewed opportunity. RBI Governor Sanjay Malhotra’s dovish signal suggests further rate cuts could follow in the coming months. The move was largely anticipated by the market, but the accompanying stance shift has led analysts to reassess the trajectory of interest rates, creating a favourable landscape for those looking to lock in fixed deposit (FD) rates or extend duration in bond investments.
Market reaction to the April 9 policy remained muted, with India’s 10-year benchmark bond yield slipping slightly to 6.44%. While the modest decline in yields reflected that much of the rate cut was already priced in, experts suggest that long-duration and dynamic bond funds could generate significant returns if the easing cycle deepens. The new accommodative posture indicates the RBI’s comfort with inflation trends and signals that additional easing may be deployed to support growth amid global macroeconomic disruptions, including the aggressive tariff war initiated by the United States.
Highlights:
RBI cuts repo rate by 25 bps, signals dovish shift in monetary stance.
10-year benchmark yield eases to 6.44%, with expectations of further decline.
Analysts foresee up to 75 bps additional cuts by September 2025.
Bond Market Outlook: Range-Bound but Bias Towards Lower Yields
Despite the repo rate reduction, the bond market remained steady, restrained in part by global volatility and recent spikes in U.S. Treasury yields. Deepak Panjwani, Head of Debt Markets at GEPL Capital, projects the 10-year Indian government bond yield to trend toward 6.25% by the next Monetary Policy Committee (MPC) meeting, suggesting a softening yield curve by September. The broader range for 10-year yields is expected to fluctuate between 6.25% and 6.60%, offering a clear opportunity for price appreciation in longer-dated securities if yields continue to fall.
Panjwani also noted that despite market calm, global bond markets remain vulnerable to external shocks, particularly those stemming from tariff escalations between major economies. According to his analysis, the RBI may implement a total of 75 basis points in additional cuts through the next two policy cycles, further increasing the appeal of locking in long bond positions. With falling rates and curve steepening in play, the long end of the bond market could generate alpha for investors positioned in duration-heavy debt funds.
Highlights:
Bond yields expected to trend lower, especially in longer maturities.
RBI likely to cut an additional 75 bps by September amid global headwinds.
Volatility in global bond markets adds urgency to fixed income repositioning.
Fixed Income Strategy: Barbell Allocation, Gilt and Duration Funds Favoured
Industry experts now advocate a diversified approach to fixed income investment, urging investors to consider a mix of short-duration and long-duration debt instruments. This “barbell strategy” allows investors to preserve liquidity on one end while also capturing capital gains from falling interest rates on the other. Prashant Pimple, CIO-Fixed Income at Baroda BNP Paribas Mutual Fund, emphasized that real rates remaining positive creates an attractive environment for fixed income as an asset class. He also highlighted the potential for extra alpha through yield curve steepening and narrowing spreads between different tenors.
Mahendra Kumar Jajoo, CIO–Fixed Income at Mirae Asset Investment Managers, advocated long-duration funds, citing the steep yield curve. The spread between 10-year and 30-/40-year bonds is currently around 40 basis points, offering significant scope for the curve to flatten and generate capital appreciation. Meanwhile, Puneet Pal of PGIM India Mutual Fund recommended dynamic bond funds, which have the flexibility to adjust their duration profile in real-time based on interest rate trends and can move between government securities and corporate bonds as needed.
Highlights:
Barbell strategy recommended: blend of short- and long-duration investments.
Long-duration bond funds, dynamic bond funds, and gilt funds to benefit.
Steep yield curve offers capital gain potential on longer-tenure securities.
Repo Rate Cut Boosts Case for Locking Fixed Deposit Rates Now
The RBI’s dovish tone also impacts traditional savers and fixed deposit investors. As the cost of funds declines for banks—thanks to favourable liquidity and policy support—there’s an increasing likelihood of a broader downward reset in FD interest rates. While public sector banks may reduce their rates gradually, several small finance banks and private sector lenders are still offering attractive FD rates of 8% or higher for long tenures. Financial advisors suggest locking into these rates now to secure above-average yields during what could become a prolonged easing cycle.
Investors with surplus capital are being encouraged to explore higher-yielding fixed deposits before banks revise their rate cards downward. This is especially relevant for conservative investors or retirees seeking predictable cash flows. In a falling rate environment, long-term deposits not only lock in superior rates but also insulate savers from reinvestment risk. The RBI’s supportive policy also suggests enhanced transmission of future cuts into bank lending and deposit rates, reducing the returns available to depositors over time.
Highlights:
FD rates expected to decline further following RBI’s accommodative shift.
Small finance and private sector banks still offering 8%+ yields.
Long-tenure FDs provide safety and income certainty during falling rate cycle.
