The Reserve Bank of India's Monetary Policy Committee voted 5-1 Friday morning IST to cut the policy repo rate by 50 basis points to 5.75% from 6.25% — the first jumbo cut of the cycle for an EM Asia central bank — and shifted the policy stance from 'neutral' to 'accommodative.' The decision was a substantial dovish surprise versus the 25 bp consensus, with only the lone dissent (Jayanth Varma) preferring a 25 bp cut.
India's benchmark 10-year sovereign bond (G-Sec) yield fell 28 basis points to 6.42% — the lowest since October 2021 — and the 5-year fell 31 bp to 6.18%. The Sensex closed up 1.4% to 81,840 and the Nifty 50 advanced 1.5%. The Indian rupee weakened slightly on the rate-differential narrative, with USD/INR rising to 83.20 from 82.96. State Bank of India (SBIN.NS) led the Bank Nifty +2.6% on net interest margin protection from cheaper funding.
Inflation Trajectory Allows Aggressive Move
RBI Governor Sanjay Malhotra cited the March CPI print at 3.34% — well below the 4% target midpoint — and the FY26 inflation projection at 4.0% (revised down from 4.2%) as the analytical foundation for the more aggressive easing pace. Core inflation has run at 3.5% for two consecutive quarters, and food inflation has moderated to 2.7% in March from 8.4% in October on improved monsoon-related output and managed retail prices.
EM Asia Read-Through
The dovish surprise triggered broad EM rates rally: Indonesian 10-year IDR yields fell 12 bp to 6.84%, Thai 10-year THB yields declined 8 bp to 2.38%, Malaysian 10-year MYR yields fell 10 bp to 3.92%, Philippine 10-year PHP yields declined 14 bp to 6.16%. The MSCI EM Asia index rose 1.4%, while the iShares MSCI Emerging Markets ETF (EEM) gained 1.1%. The dollar index (DXY) declined 0.3% as the dovish-EM-CB cohort momentum pressured the relative-rate trade.
Equity Sector Rotation
Indian rate-sensitive sectors led: real estate developers DLF