A shallow rate cut cycle of 25-50 basis points (bps) by the Reserve Bank of India (RBI) is anticipated, with additional liquidity easing measures also possible to stimulate growth, according to a report released on Monday. The RBI is projected to reduce the repo rate by 25-50 bps to 5.7 percent in the near future.
The commencement of the rate cut cycle during the central bank’s February Monetary Policy Meeting (MPC) was expected, and the MPC minutes revealed broad convergence among members on the most pressing issues, according to the report by Emkay Global Financial Services. The minutes indicated a consensus among members on the necessity of easing rates to support growth, with the improving inflation outlook providing the necessary room for this adjustment.
“Going forward, we expect a shallow rate cut cycle (another 25-50bps), along with the likelihood of easing regulatory measures,” stated the report.
All MPC members, both internal and external, agreed that the lower inflation trajectory in recent months and the favorable outlook ahead provided the MPC with the flexibility for a rate cut to support growth. According to a Kotak Research report, another 25-50 bps of rate cuts in FY26 is anticipated, given the RBI’s increased tolerance for the Indian rupee’s weakness and the inflation trajectory aligning with the 4 percent target without any supply shocks.
RBI Governor Sanjay Malhotra emphasized that stronger policy frameworks and robust macro fundamentals are key to resilience and fostering overall macroeconomic stability. Domestically, there is a need to maintain high growth momentum while preserving price stability, necessitating the use of various policy instruments to balance inflation and growth, he stressed at the MPC meeting.
The real GDP growth for the current year is estimated at 6.4 percent, a softer expansion after a robust 8.2 percent growth last year. Although GDP growth is expected to recover in the second half of 2024-25 and 2025-26 from the 6.0 percent recorded in the first half of 2024-25, the projected growth rate for 2025-26 varies from 6.3 to 6.8 percent according to various forecasts.
