Investment Strategies for Stocks, Bonds, and Currency Markets in RBI MPC Meeting 2025

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting commenced today, February 5, marking the first policy review under the leadership of the newly appointed Governor, Sanjay Malhotra. Additionally, this meeting follows the Union Budget 2025-2026, which was unveiled on February 1.

Expectations on Rate Cuts

Economists broadly anticipate a 25-basis-point (bps) reduction in the benchmark repo rate, bringing it down to 6.25%. During the previous MPC meeting in December 2025, former RBI Governor Shaktikanta Das maintained the repo rate at 6.5% for the eleventh consecutive session, keeping the monetary policy stance ‘Neutral.’

Although an interest rate cut was widely expected by January 7, analysts suggest that markets have largely factored in this move. Consequently, investor attention is likely to shift towards the RBI’s future policy direction, particularly regarding liquidity management and currency stability.

Investment Strategies Ahead of RBI's Policy Decision

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Stock Market Strategy

Indian equity investors are keenly awaiting the RBI MPC's decision, set to be announced on Friday.

"With the Union Budget 2025-26 focusing on boosting consumption, expectations for a rate cut are high. From a technical perspective, Nifty 50 must surpass 24,020 (its 200-day moving average) to confirm bullish momentum," stated Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd.

The budget’s emphasis on urban consumption, backed by significant income tax relief, has positively impacted the stock market.

Abhishek Pandya, Research Analyst at StoxBox, commented, "This relief is expected to revive urban consumption, which has remained sluggish for several quarters. Investors will be closely monitoring Governor Malhotra’s outlook on inflation and GDP growth projections. If the RBI initiates monetary easing at this meeting, it could significantly support growth in FY26."

UBS analysts highlighted that while the budget provides a boost to urban consumption and rural housing, it lacks a strong capital expenditure push. "The ₹1 trillion stimulus for urban consumption benefits sectors such as consumer durables, two-wheelers, staples, and consumer finance. However, the relatively muted capex increase may limit overall market gains," they noted.

From a technical standpoint, Nifty 50 has immediate support levels at 23,600, followed by 23,500 and 23,400. On the upside, resistance levels stand at 23,800, with further hurdles at 23,900 and 24,000.

Bond Market Strategy

Suresh Darak, Founder of Bondbazaar, anticipates a 25-bps rate cut, given the government’s commitment to maintaining fiscal discipline.

"Since this expected move is already priced into the market, we do not foresee any major fluctuations. However, the key focus will be on RBI’s stance regarding liquidity management amid concerns over currency depreciation," Darak stated.

Mayank Mundhra, FRM-VP Risk & Head of Research at Abans Group, pointed out that Indian government bond yields have been in a declining trend over the past year.

"The 10-year bond yield, which recently touched 6.63%, is already near the repo rate of 6.5%, indicating that markets have largely accounted for the expected rate cut. RBI’s liquidity injection measures, such as VRR, OMO in 10-year bonds, and buy/sell swaps, have effectively capped yield increases," he explained.

However, Mundhra cautioned that any delay in rate cuts due to global volatility or inflationary pressures could lead to unexpected market reactions.

Puneet Pal, Head of Fixed Income at PGIM India Mutual Fund, anticipates that the RBI will likely begin its rate-cutting cycle from April 2025. He recommends that investors consider Short-Term and Corporate Bond Funds with a portfolio duration of up to four years.

"For investors with a 12-18 month horizon, money market instruments with maturities of up to one year currently offer an attractive risk-reward scenario," Pal advised.

Currency Market Strategy

The Indian rupee has been under depreciation pressure, reaching a record low of 87.34 against the US dollar on February 5.

"RBI’s priority will be managing the liquidity deficit in the banking system while keeping an eye on currency stability. The new leadership at RBI appears more inclined to allow controlled depreciation of the rupee in response to global economic conditions. Consequently, we expect the rate-cutting cycle to begin in April 2025," Pal remarked.

Dr. Bharath Supra, Associate Professor and MBA Program Chair at SBM Navi Mumbai, SVKM’s NMIMS, highlighted that a repo rate cut could exert additional pressure on the rupee. However, RBI’s interventions through open market operations might help mitigate its impact.

"RBI faces a complex scenario—core inflation remains stable, yet food and retail inflation persist at high levels. Meanwhile, economic growth is slowing, the rupee remains under stress, and global uncertainties continue. A rate cut would likely weaken the rupee further, though RBI’s strategic interventions could help limit the fallout," Dr. Supra noted.

Given the volatility in the currency market, investors should focus on sectors that benefit from a weaker rupee, particularly export-driven industries.

As the RBI MPC meeting unfolds, analysts recommend that investors take a balanced approach. In the bond market, short-to-medium-term investments appear favorable, while equity market participants should concentrate on consumption-driven sectors. Currency market watchers should remain alert to RBI’s interventions and global economic factors impacting the rupee.

The RBI’s guidance on liquidity management and currency stability will play a crucial role in shaping sentiment across various asset classes.