RBI To Cut Rates In Next MPC Meet? ICRA, Moody's Analysts Believe So
A rate cut is on the cards for February according to ICRA, while Moody's holds hope for the same by April or May.
The Reserve Bank of India might deliver its first rate cut of 2025 as early as February, according to leading economists. Aditi Nayar, chief economist at ICRA Ltd., views this as a possibility, contingent on inflation remaining under control. While, Katrina Ell, director of economic research at Moody's Analytics, is more cautious, predicting a rate cut closer to April or May.
JPMorgan is in tandem with Nayar, stating that a February rate cut is on the table if inflation tracks RBI's projections until the month in question. RBI's higher conviction on headline CPI is heading to a 4% handle, they added.
While headline inflation is currently above the Monetary Policy Committee's upper threshold of 6%, a positive surprise in the form of a cash reserve ratio reduction has shifted expectations.
Nayar forecasts GDP growth at 6.5% for fiscal 2025, with a constructive outlook for the second half.
If the outlined inflation trajectory holds and no negative surprises emerge, a February rate cut is definitely on the table.Aditi Nayar, ICRA
Nayar emphasised that domestic trends, rather than US Federal Reserve actions, have become the primary focus for India's monetary policy.
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Diverging From The Fed
The central bank's priorities are now increasingly local, according to both economists. "We won't see a one-to-one correlation with the Fed's moves. Domestic factors have taken center stage," Nayar explained.
Her baseline expectation includes two rate cuts in 2025—one in February and another in April. Meanwhile, "the RBI will tread incredibly carefully, prioritising a sustained moderation in inflation over short-term growth pressures," remarked Ell.
Inflation And Growth
Despite recent moderation, headline inflation still breaches the MPC's comfort zone, the economists said. Ell noted that the CRR reduction is unlikely to spur growth directly but could ease liquidity constraints.
"India's growth bottomed out in Q2, and high-frequency indicators like auto sales and coal production suggest an improvement in Q3," said Nayar. However, urban consumption remains uneven, with its tax-positive nature providing some cushion, she added.
"Urban consumption will be more tax-positive than rural consumption," Nayar stated.
