- Base case on rates & stance
- Cut triggers vs. inflation triggers
- Market implications: STCI, duration, PSU banks
- Watchlist into Sep 29–Oct 1
The short
- Calendar: Next MPC on Sep 29–Oct 1, 2025.
- Setup: Growth surprise (Q1 FY26 at 7.8% YoY) vs. easing core CPI; food path & tariffs are swing risks.
- House view (illustrative): Base-case hold with a dovish tilt; shallow cut cycle contingent on food normalization & stable FX.
Cut path vs. inflation path
When cuts come
- Core CPI grinding lower; headline moderated if food fades post-monsoon.
- External: benign USD backdrop, contained oil band.
- Transmission: lending rate passthrough steady; output gap narrowing but not closed.
When cuts pause
- Food shocks persist; reservoir deficits → sticky headline.
- Tariff spillovers push tradables inflation and dent exports.
- FX volatility or imported inflation re-widening the real policy gap.
Portfolio Plan
| Bucket | What to watch | Positioning lens |
|---|---|---|
| STCI (up to 3y) | Overnight/3M bill rates; VRR/VRRR cadence | Carry+roll still attractive; add on dips |
| Duration (7–14y) | Term premium vs. history; auction tails | Prefer staggered adds; convexity wins if path to cuts clears |
| PSU Banks | Credit growth, cost of funds, LDR | Benefit from curve bull-steepening; watch HTM/AFS mark-to-market |
| NBFCs | NIM resilience; securitization costs | Spread sensitivity to policy signalling & liquidity |
Data watch into the meeting
- Inflation High-frequency food; core momentum.
- Growth PMI breadth, credit growth, e-way bills.
- External Oil band, FX stability, export orders.
- Liquidity System surplus/deficit, CD/CP prints.
Reading guide: A hold with dovish language keeps carry trades supported; a clear cut-cue extends duration outperformance and favors quality PSU bank exposure.