Record low inflation ignites possibility of a repo rate, could have salubrious effect on G-Sec yields

The  prospects of the 10-year G-Sec yield declining further to 6.30-6.35 per cent exist if both tariff agreement and repo rate cuts materialise
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Government Securities (G-Secs) yields may decline in the coming weeks amid historically low retail inflation, signaling potential repo rate reductions. Market analysts also anticipate foreign portfolio investor (FPI) inflows into India’s equity and debt markets if ongoing US tariff negotiations conclude favorably.

Industry observers project the benchmark 10-year G-Sec (6.33% GS 2035) yield could approach 6.40% ahead of the monetary policy committee’s December meeting. Should tariff resolutions coincide with repo rate cuts, yields might test the 6.30-6.35% range.

CPI inflation

The October CPI inflation reading of 0.25%, slightly below market forecasts of 0.40%, increases pressure on the RBI to adjust monetary policy. “Inflation near zero compels the central bank to consider easing measures,” noted V Rama Chandra Reddy, Head of Treasury at Karur Vysya Bank. “A 25 basis point repo rate cut appears likely, with potential policy stance shifts to accommodative.”

Reddy added that consistent secondary market activity, potentially reflecting RBI interventions via NDS-OM, continues supporting bonds. “Yields could soften further with the 10-year benchmark potentially stabilizing around 6.38-6.40% before policy decisions provide fresh direction.”

Venkatakrishnan Srinivasan of Rockfort Fincap observed muted market reaction to inflation data, with yields dipping only marginally to 6.50%. “This caution stems from questions about sustainability,” he explained. “Investors await confirmation that low inflation isn’t primarily driven by base effects or temporary supply corrections.”

Srinivasan expects yields to consolidate between 6.45-6.55%, possibly testing 6.35-6.45% post-policy easing or reduced external pressures.

Ajay Manglunia from Capri Global Capital highlighted persistent US Treasury yields above 4% as limiting domestic rate cut urgency. “Any repo rate reduction would likely be modest, perhaps 25 bps next quarter,” he suggested.

Market participants also reference recent RBI commentary, with Governor Sanjay Malhotra noting that 10-year yields won’t mirror repo rate movements proportionally. Malhotra affirmed ongoing measures to enhance monetary transmission, including optimizing government security auction tenors.

Published on November 12, 2025