RBI Rate Cut To Spur Growth, Inflation To Ease In Fiscal 25, Predicts India Rating

India Ratings and Research expects the Reserve Bank of India's monetary policy committee to cut the benchmark interest rate by 25 basis points in its policy review meeting next month to stimulate growth.

According to Devendra Kumar Pant, India Rating Chief Economist and Head of Public Finance, headline inflation in fiscal 2025 is projected to ease to 4.7%, with monetary easing likely limited to 75 basis points in fiscal 2026.

India Rating also noted that a higher-than-anticipated impact from US reciprocal tariffs could prompt additional easing by the RBI. The monetary policy committee is scheduled to meet six times during fiscal 2025-26, starting with its first meeting on April 7–9.

Previously, the RBI had raised the policy rate by 250 basis points between May 2022 and February 2023, bringing it to 6.5% to combat persistent inflation. In February 2025, the repo rate was reduced by 25 basis points to 6.25%. Ind-Ra predicts headline retail inflation will fall below 4% in the March quarter of fiscal 2025, marking the first instance in 21 quarters.

It expects RBI to go in for maximum three rate cuts in fiscal 2026, aggregating to 75 bps.

"These along with one rate cut in February 2025 would translate in a 100bps cut in the current policy easing with the terminal repo rate at 5.5% and average inflation at around 4%, which would translate in a real repo rate of 1.5% in fiscal 2026," Ind-Ra said.

The February 2025 MPC minutes suggest that the RBI is cognizant of slowing growth momentum. This suggests that while the low and stable inflation is the prime target of the RBI, the growth support through monetary policy will increasingly be a focus area of monetary policy, Ind-Ra added.

(With PTI Inputs)