No more RBI rate cuts ahead? Here's what Reserve Bank of India's surprise bonanza signals for investors

RBI Monetary Policy: In its June monetary policy meeting, the Reserve Bank of India (RBI) front-loaded rate cuts with a 50 basis points reduction, supported by benign inflation. This move has led to expectations that the current rate cut cycle may have come to an end — at least for now.

RBI Governor Sanjay Malhotra's shift in policy stance from ‘accommodative’ to ‘neutral’, along with his statement that the Monetary Policy Committee (MPC) will now carefully assess income data and the evolving economic outlook before deciding on further action, also signals a possible pause in rate cuts. In another liquidity booster, Malhotra announced a 100 bps CRR cut bonanza.

“The RBI surprised on three fronts: with a 50 bps cut, CRR cut of 100 bps (between September to November), and a stance change back to neutral. This effectively puts a pause to the rate cut cycle. The focus now shifts to quick and maximum possible transmission of the 100 bps repo rate cuts till now," said Suvodeep Rakshit, Chief Economist, Kotak Institutional Equities.

He believes that the RBI's future policy action will be dependent on domestic growth-inflation outturns. "We do not expect further rate cuts over the next few policies while watching for the evolution of global growth and domestic inflation risks," Rakshit added.

Echoing similar views, market veteran and Geojit Investment's chief investment strategist Dr VK Vijayakumar said this big rate cut is, as the RBI Governor remarked, a front-loading of the rate cut. The change in monetary stance from accommodative to neutral also indicates that more rate cuts are unlikely unless the situation warrants, said Vijaykumar.

However, Sujan Hazra, Chief Economist & Executive Director of Anand Rathi Group, said that while this change might be read as a signal that the rate cut cycle is nearing its end, we believe it is aimed at tempering any potential “irrational exuberance” in the financial markets.

The Street was widely anticipating a 25 bps rate reduction by the RBI MPC as against a 50 bps cut to 5.50%. This not only marked the third straight RBI rate cut so far in 2025, but also took the effective rate cut to 100 bps. Against this backdrop, Governor Malhotra said, "After reducing repo by 100 bps in quick succession, the monetary policy is left with limited space to support growth."

However, Gautam Duggad, Head of Research, Institutional Equities, Motilal Oswal Financial Services, believes that a benign inflation outlook coupled with a challenging growth outlook amid trade policy uncertainty and geopolitical tensions provides room for more rate cuts. Against this backdrop, he anticipates two more rate cuts of 25bps each in FY26 to support growth.

RBI rate cut impact for investors

Decoding the impact of the rate cut on investors, Hazra said the policy decision is constructive for both equity and debt markets. In equities, interest-sensitive sectors are poised to benefit. While lower rates and policy transmission could have weighed on bank net interest margins in the near term, the sizeable CRR cut provides a significant offset, making this a particularly positive move for banks, Hazra said.

Swapnil Aggarwal, Director VSRK Capital, believes the rate reduction move could spark a shift from fixed deposits to the capital markets, which bodes well for both mutual funds, Indian stock markets and debt instruments.

"The reduction in interest rate will impact returns on fixed deposits, which were attractive during the high-rate period. With a decline in FD rates, we expect an increased shift in investors to mutual funds, debt instruments and other market-linked products. This may result in renewed investments into the capital markets, which would improve liquidity and growth," said Aggarwal.

The impact of the RBI's bazooka was already visible in the Indian stock market, with rate-sensitive sectors like banks, auto and realty leading the charge.

The BSE Sensex surged over 800 points in intraday deals to the 82,300 level while its NSE counterpart Nifty 50 topped the 25,000 mark today, led by a rally in HDFC Bank, Axis Bank, Bajaj twins, Maruti Suzuki and M&M.

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