HomeEconomy NewsRBI rate cuts likely to pause at 5.5%, bond yields may hover near 6%: BofA
Claudio Irigoyen, Head of Global Economics Research at BofA, and Rahul Bajoria, Head of India and ASEAN Economic Research, shared their views on the upcoming RBI policy decision, foreign fund flows into India, and how global tariff tensions could affect markets.
With one rate cut widely expected in June, the Reserve Bank of India (RBI) could be nearing the end of its current easing cycle, according to Rahul Bajoria, Head of India and ASEAN Economic Research. “We are still comfortable maintaining 5.5% as the terminal rate for India,” said Bajoria, pointing to signs of stabilisation in growth and well-anchored inflation.
RBI’s Monetary Policy Committee cut the benchmark repo rate by 25 basis points each in February and April, bringing it down to 6%. The MPC is scheduled to deliver its next rate decision on June 6.
Bajoria added that high-frequency indicators show some stabilisation, though the near-term outlook isn’t particularly strong. “But beyond 5.5%, we think there might be a preference to kind of save some ammo in case it is needed to be deployed later on,” he said.
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The bond market, meanwhile, may already be pricing in most of the good news. Indian 10-year bond yields have fallen about 75 basis points in the last six months, and Bajoria believes there’s “a little bit more juice left,” with yields likely to settle around 6%, give or take 10 basis points.
Liquidity conditions are expected to remain supportive, but the RBI’s next steps on transmission and capital flows will be key to where yields go from here.
Adding to the global context, Claudio Irigoyen, Head of Global Economics Research at BofA, said the broader environment of rising developed market yields, especially in the US and Japan, will continue to impact global flows. However, a weakening US dollar and portfolio rebalancing may still favour countries like India.
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“As the dollar continues to weaken and global portfolios move towards more neutral allocations, India could be one of the beneficiaries,” he said. While developed market deficits and yield spikes are causing volatility, emerging markets like India—where rate cuts are still on the table—may draw incremental bond inflows.
