FILE PHOTO: Reserve Bank of India (RBI)
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FRANCIS MASCARENHAS
The Reserve Bank of India (RBI) will likely cut repo rate by up to 100 basis points (bps) more in the current easing cycle, economists say. The RBI, under Governor Sanjay Malhotra, has cut repo rate twice successively by 25 bps each to 6 per cent currently.
The RBI’s monetary policy committee (MPC) also changed its policy stance from neutral to accommodative, signalling likelihood of rate cuts or status quo going ahead.
“We have long held the view that this easing cycle was not shallow and terminal rates would settle around neutral. However, with growth below potential, falling oil prices and inflation durably aligned to target, policy rates need to be accommodative. Hence, we are lowering our terminal rate forecast to 5 per cent (from 5.50 per cent), which implies an additional 100 bps in rate cuts by end-2025 (25 bps in each of the consecutive meetings in June, August, October, and December),” economists at Nomura said.
According to Nuvama Research, overall, the RBI has begun unwinding its restrictive monetary policy through a combination of rate cuts and liquidity injections. The shift to an accommodative stance further signals the possibility of additional rate reductions ahead.
“We anticipate the repo rate could decline to 5–5.25 per cent over the course of this easing cycle. On the liquidity front, we expect the RBI to remain proactive in ensuring stable and adequate liquidity conditions within the banking system,” it said.
Growth dynamics
Rajani Sinha, Chief Economist, CareEdge Ratings, says the change in MPC’s stance to accommodative indicates that going forward the focus of MPC will be on supporting growth amidst muted inflationary pressure.
While the RBI has trimmed the growth projection for FY26 to 6.5 per cent, Sinha feels the GDP growth could be even lower at around 6.2 per cent, taking into account the direct impact of reciprocal tariff at around 0.2-0.3 per cent of GDP.
“Inflation is likely to remain muted, though our projection for average CPI for FY26 is 4.2 per cent (marginally higher than RBI’s projection), as we remain concerned about weather related uncertainties like heatwaves. In midst of global uncertainties and growth concerns, we expect further 50 bps rate cut in FY26. We do not rule out the possibility of the rate cut cycle being even deeper if the global trade war severely dents growth prospects,’’ she said.
Gaura Sen Gupta, chief economist at IDFC First Bank, shared similar views, saying their in-house assessment shows downward impact on growth from tariffs at around 0.5 per cent, which hasn’t been baked into the GDP estimate.
“We expect the rate cut cycle to be deeper post the stance change to accommodative. We now see another 50 bps cut in the remainder of 2025 v/s earlier expectation of 25 bps. Another factor is the comfort on inflation with RBI seeing durable alignment of headline inflation with the 4 per cent-target in FY26,” she said.
Published on April 14, 2025
