RBI Monetary Policy: Economist Bets Range Between 50-75 Bps In Repo Rate Cuts Going Forward

The Reserve Bank of India's (RBI) Monetary Policy Committee, led by Governor Sanjay Malhotra, retained the benchmark repo rate at 5.5%. The RBI revised the Consumer Price Index (CPI) inflation forecast downward while revising the Gross domestic product (GDP) growth forecast upward. There has been a significant moderation in inflation, Malhotra acknowledged, adding that outlook appears even more benign than earlier anticipated.

Moreover, the prevailing global uncertainties and tariff related developments are likely to decelerate growth in the second half of the financial year and beyond. As such, "the current macroeconomic conditions and the outlook has opened up policy space for further supporting growth," Malhotra said.

"We now project two more 25 basis point rate cuts from the RBI, taking the terminal rate to 5% by February 2026," said Rahul Bajoria, Head of India and ASEAN Economy Research at BofA. The pressure on RBI to cut rates will dissipate if India's trade deal gets concluded early, and exports growth rebounds, he said. But since RBI does not seem to be factoring that in the baseline, the balance of risks is for RBI to start moving in December, if current projections broadly hold, he added.

"We expect 50–75 basis points of more rate cuts in this cycle," stated a note by Nuvama. Demand is weak and inflation is undershooting. Hence, the RBI's wait-and-watch approach is not very convincing, according to economists at Nuvama, who added that timeliness of rate cuts might be as critical as quantum of rate cuts.

The timing of the cut will likely depend on growth figures in H2, stated a note by SBI Caps, forecasting just one more cut of 25 basis points in the current cycle.