Will the RBI change interest rates in 2026?

The RBI is expected to maintain a pause on policy rates for most of 2026, with potential for a rate increase in the second half only if inflation significantly rises.

What is the projected demand-supply gap for Indian bonds in 2026?

The Indian bond market is estimated to face a demand-supply gap of approximately ₹2-2.5 lakh crore due to the gross borrowing target of ₹17.2 lakh crore.

What is the advice for fixed income investors in 2026?

Investors are advised to focus on the short end of the curve, particularly 1-2 year AAA corporate bonds, which offer higher yields and a strategy for potential interest rate cycle reversals.

Home / Business and Economy / RBI Pause: Rate Cycle Ends, Bond Yields to Hover?

RBI Pause: Rate Cycle Ends, Bond Yields to Hover?

15 Feb

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Summary

RBI likely to maintain a pause on policy rates throughout 2026.
Indian bond market faces a ₹2-2.5 lakh crore demand-supply gap.
Investors advised to focus on short-term AAA corporate bonds.

RBI Pause: Rate Cycle Ends, Bond Yields to Hover?

The Reserve Bank of India (RBI) is anticipated to maintain its pause on policy rates for the majority of 2026. This stance is supported by projected economic growth between 6.75% and 7% for FY27 and inflation expected to remain below 4.75% for the full year.

The Indian bond market faces a substantial demand-supply gap, estimated at ₹2-2.5 lakh crore, due to a gross market borrowing target of ₹17.25 lakh crore for the current budget. While the inclusion of Indian bonds in the Bloomberg active global aggregator index could bring in approximately $25 billion, its impact may be seen later in the year or next.