Goldman Sachs sees India's benchmark repo rate falling to 5.50% in the current rate cycle because of the conducive macroeconomic conditions. Growth slowdown in first quarter, as indicated by the frequency data and moderating inflation, are supporting further easing. Decline in the dollar index and brent crude prices will also provide comfort to RBI to reduce rates.
HSBC expects that the Reserve Bank of India will deliver two more rate cuts by August, taking the benchmark repo rate to 5.5% by August. It expects a final rate cut in December this calendar year. However, its possibility will depend on macro condition of the country.
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Nomura also said Tuesday that it is expecting a sharp reduction in repo rate by the end of 2025.
HSBC and Goldman Sachs are expecting a 25-basis-point rate cut in RBI Monetary Policy Committee's three-day June policy meeting, which will conclude Friday.
The repo rate is currently at 6.00%, after the central bank cut the rate by 25 basis points each in February and April.
The monetary policy statement will be crucial to understand what the central bank is planning to do in the future. Any change in inflation projection for financial years 2026 and 2027 will give fresh cues.
HSBC does not expect any change in growth forecast. RBI's growth forecast is at 6.5% and 6.7% for the current and the next fiscal respectively. The present inflation forecast for the fiscal 2026 is at 4% and for the fiscal 2027, it is at 4.3%. RBI's recent actions in last three months shows the central bank's intent to easy banking system liquidity environment. The durable liquidity in the Indian banking system was in surplus of Rs 1 lakh crore in March, which is 0.5% of net demand and time liabilities, Goldman Sachs said.
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