Reading the RBI's Playbook for FY25

A committee with conflicting signals

Core inflation has cooled faster than food inflation, the rupee has stayed remarkably range-bound, and system liquidity has swung between surplus and deficit within the same quarter. None of these point cleanly in one direction, which is exactly why the RBI has stayed cautious rather than decisive.

What we’re watching

• Food inflation persistence. A below-normal monsoon in key states would keep the MPC on hold well past when core inflation alone would justify a cut.
• Global rate divergence. A slower pace of cuts from developed-market central banks reduces the room the RBI has to ease without pressuring the rupee.
• System liquidity operations. The RBI’s VRR/VRRR auctions tell us more about near-term policy intent than the repo rate print itself.

Portfolio implications

We’ve kept duration moderate across debt allocations rather than making an aggressive bet on imminent rate cuts. On the equity side, rate-sensitive sectors — financials and real estate in particular — remain the ones most likely to re-rate quickly once the RBI’s stance turns unambiguously dovish.