Macro Pulse – A Balancing Act Between India’s Economic Growth and Stability
September 2025 brought a sense of measured calm to global markets, even as growth divergence deepened across major economies. The U.S. economy expanded ~2.9%, China struggled near 2%, and the Eurozone steadied at 2%. India, meanwhile, continued to chart its own trajectory – supported by robust consumption, improved fiscal metrics, and a disciplined monetary stance.
The contrast between developed and emerging markets grew sharper: while the U.S. Federal Reserve signaled that its tightening cycle may soon pause, China’s policymakers leaned toward renewed stimulus to counter deflationary pressures. India stood comfortably in the middle, balancing inflation control with growth momentum.
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RBI Policy – Holding Steady as Inflation Eases
The Reserve Bank of India maintained the repo rate at 5.50%, reverse repo at 3.35%, and bank rate at 5.75%. The stance remains “withdrawal of accommodation,” but the tone has softened as headline inflation remains close to the 4 % target.
Short-term money-market instruments reflected this comfort:
| Instrument | Sep 2025 Rate (%) | 1 Year Ago (%) | Trend |
|---|---|---|---|
| TREP (overnight) | 5.47 | 6.69 | Eased ↓ |
| 91-day T-Bill | 5.40 | 6.34 | Eased ↓ |
| 3-Month CD | 5.87 | 7.31 | Eased ↓ |
| 1-Year CP | 6.40 | 7.22 | Eased ↓ |
Abundant liquidity and moderating credit demand have helped short-term yields drift lower. The takeaway: the RBI is comfortable letting liquidity support the system as long as inflation expectations remain anchored.
Bond Markets – Yields Ease Across the Curve
Gilt yields fell up to 17 basis points (bps) across maturities, while corporate bond yields slipped 11 bps on average. The only outlier was the 1-year paper, which rose slightly by 9 bps amid seasonal liquidity adjustments.
The spread between corporate and government securities narrowed for 2- and 10-year segments, implying a gradual return of risk appetite among debt investors. For long-duration funds and sovereign bond allocations, this provided a modest tailwind in September.
Key takeaway: The bond market is signaling comfort with India’s macro framework and is quietly pricing in a mild rate cut in early 2026 if inflation continues to behave.
Global Snapshot – Inflation Paths Diverge
The global inflation map turned fragmented:
- U.S. CPI ~ 2.9 % – sticky but stable, keeping the Fed hawkish.
- U.K. ~ 3.8 % – moderating slowly from last year’s highs.
- Eurozone ~ 2 % – in line with ECB’s target.
- China (-0.4 %) – a return to deflation concerns.
This divergence is shaping FX and commodity flows. Emerging markets with positive real yields (like India and Brazil) remain attractive to global investors seeking carry returns.
India’s Real Yield Premium – A Global Bright Spot
India’s 10-year G-Sec yield stood at 6.57 %, while headline inflation averaged 2.07 %, translating to a real yield of 4.5 %, among the highest in the world
By comparison, the U.S. offered a real yield of 1.25 %, Germany 0.84 %, and Japan negative 1.05 %. This yield differential is not just a statistical curiosity, it’s a major reason why global allocators continue to view India as a favorable destination for both sovereign and corporate debt flows.
| Country | 10-yr Yield (%) | Inflation (%) | Real Yield (%) |
|---|---|---|---|
| Brazil | 13.73 | 5.13 | 8.59 |
| India | 6.57 | 2.07 | 4.50 |
| France | 3.54 | 0.90 | 2.64 |
| China | 1.88 | -0.40 | 2.28 |
| U.S. | 4.15 | 2.90 | 1.25 |
| Germany | 2.94 | 2.10 | 0.84 |
| Japan | 1.65 | 2.70 | -1.05 |
Such real yields anchor the rupee and support foreign portfolio investment (FPI) inflows, even as global bond markets remain volatile.
Liquidity and Credit – Ample and Orderly
Liquidity conditions remained supportive with CRR at 3.75 % and SLR at 18 %. Corporate credit spreads widened marginally (2 – 12 bps), reflecting selective repricing rather than systemic tightness. Banks and NBFCs continued to focus on high-quality borrowers, keeping non-performing assets under control.
Mutual fund data showed steady flows into liquid and ultra-short-duration funds, underscoring the preference for safety and liquidity in the short end of the yield curve. Retail investors are also incrementally shifting toward debt funds as returns turn more predictable than last year’s volatile equity cycle.
Domestic Data to Watch – October 2025 Events
| Indicator | Release Date |
|---|---|
| CPI Inflation (YoY, Sep) | 13 Oct 2025 |
| WPI Inflation & Manufacturing Data | 14 Oct 2025 |
| Passenger Vehicle Sales (YoY) | 15 Oct 2025 |
| Balance of Trade & Unemployment Rate | 15 Oct 2025 |
| Industrial Production (YoY) | 28 Oct 2025 |
| Government Budget Value | 31 Oct 2025 |
On the global side, look out for the U.S. and U.K. inflation prints, China’s Loan Prime Rate decision (on 20 Oct), and Japan’s nationwide CPI (on 23 Oct). These events will shape global bond yields and currency flows heading into November.
Global Growth Matrix – Two Worlds, Two Speeds
While emerging markets like India and Brazil continue to expand above trend, developed markets are showing signs of slowing momentum. China’s recovery is patchy and credit-driven, Europe’s growth is constrained by energy costs, and the U.S. consumer remains resilient but debt-laden.
This two-speed world creates a fertile environment for active allocation strategies. For Indian investors with global fund exposure, the lesson is clear, diversify geographically but anchor in India’s structural growth story.
Sectoral Reflections – Debt Funds Back in Focus
With rates plateauing and yields softening, debt funds across short-duration and corporate bond categories are regaining popularity. Investors seeking stability and tax-efficiency are re-evaluating fixed-income allocations within multi-asset portfolios.
At Growthfiniti, the Efficient Frontier framework continues to recommend balanced exposure across duration and credit quality, ensuring that returns are risk-adjusted and aligned with individual goals. Institutional-grade processes like risk budgeting and factor-based selection help clients capture value even in moderate yield cycles.
Outlook – The Calm Before a Policy Shift
Looking ahead to Q4 FY25, the base case remains one of stability: moderate inflation, ample liquidity, and a steady rupee. However, a few variables bear watching, energy prices, global food inflation, and U.S. bond market volatility. Any surprise on these fronts could delay the RBI’s pivot toward easing.
For now, markets are pricing in a possible 25–50 bps cut by mid-2026, conditional on global central banks stabilizing. Until then, the policy narrative will likely emphasize data-dependence and gradualism, hallmarks of India’s macro prudence.
Investor Takeaway – Stay Positioned, Stay Patient
- Maintain core debt allocations: Real yields remain favorable; duration offers a modest carry opportunity.
- Balance across risk budgets: Use short-term funds for liquidity and longer-duration funds for potential capital gains.
- Watch global triggers: U.S. rate decisions and China’s policy moves may influence flows into emerging markets.
- Avoid speculative bets: This is a phase for steady compounding, not momentum chasing.
In short, India’s Economic Growth remains a bright spot in a world of crosscurrents, high real yields, stable policy, and resilient growth. For long-term allocators, staying invested through this phase could prove rewarding as the next interest-rate cycle turns favorable.