RBI Rate Cut Cycle Nears: Axis Direct Foresees June Policy Pivot

Rate Cut On Cards: After the RBI Governor Sanjay Malhotra led monetary policy committee (MPC) kept the repo rate unchanged at 5.25% in June, Axis Direct projected the possibility of reverse in the rate cycle in the upcoming policy meetings.

The brokerage house noted, "Apart from the oil price shock, a possible sub-par monsoon will also push inflation higher. Moreover, the rupee has depreciated sharply against the dollar and has been the worst-performing currency in the emerging markets."

"We believe these factors, taken together, are likely to prompt the regulator to reverse the rate cycle in the upcoming policy meetings. However, the RBI has reiterated that any further policy action will largely remain data- driven," it said.

This comes after the centre decided to rationalise the tax treatment applicable to investments by FPIs in Government Securities (G-Sec), by exempting such investments from income tax on any interest or capital gain (effective retrospectively from 01st April, 2026).

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Additionally, the RBI has also announced measures to strengthen forex reserves and improve the flow of foreign capital.

These measures aim to counter aggressive FII outflows, attract foreign capital for government borrowing, while simultaneously easing the pressure on the Indian Rupee, and deepen foreign participation in India's sovereign debt market.

RBI's Key Measures To Attract Foreign Capital

For G-Sec under the Fully Accessible Route (FAR), RBI is expanding the universe of 'specified securities’ by including all new issuances of 15-, 30-, and 40-year tenor G-Secs.

Limits pertaining to short-term investment, concentration and individual securities on FPI investment under the General Route are being removed.

The limits for investment by NRIs and OCIs in equity instruments traded on the stock market without SEBI registration are being increased. Further, the same facility is being extended to all individual Persons Resident Outside India (PROIs) at par with NRIs and OCIs.

A facility of concessional forex swap will be provided till 30th September, 2026, to incentivise ECBs by PSUs.

A similar facility for bearing the full hedging cost shall be provided till 30th September, 2026, to AD banks for raising fresh 3-5-year FCNR (B) deposits.

RBI has proposed to restore the time for realisation of export proceeds to 9 months.

"We believe this is a positive announcement for banks as it can improve the foreign currency inflows into the banking system, thereby supporting liquidity," the brokerage report noted.