A lower-than-expected CPI inflation print in January 2025 is likely to give RBI MPC further policy room for another 25 bps rate cut on April 9, the next policy review meeting, said economists at various foreign banks and research outfits.
This will be on top of the February 7 policy rate cut of 25 basis points, the first cut in nearly five years. Prior to that RBI had kept policy rate unchanged at 6.5 per cent since February 2023, they said.
Some foreign banks expect the RBI to go in for as much as 75 basis points cut in repo rate in the current easing cycle.
The RBI’s monetary policy committee (MPC) had embarked on its easing cycle in February 2025, lowering the repo rate to 6.25 per cent, while retaining its stance as “neutral”.
Driven by vegetable disinflation, headline CPI inflation softened to 4.3 per cent in January 2025 from 5.2 per cent in December 2024, lower than expectations of most foreign banks.
Aastha Gudwani, Regional Economist, India, Barclays Research, said “We are now tracking Q4 FY25 CPI inflation at 3.8 per cent year-on-year , materially lower than RBI MPC’s 4.4 per cent y-o-y estimate. This reinforces our 25 basis points repo rate cut call in April policy meeting”.
Pranjul Bhandari, Chief Economist, India and Indonesia, HSBC Global Research said “We expect another 25 basis points rate cut in the April policy meeting, taking the repo rate to 6 percent”.
HSBC Global Research expect a continued fall in food prices to offset the inflationary impact of currency depreciation.
Radhika Rao, Executive Director & Senior Director, DBS Bank said that monetary policy would remain focused on the domestic growth-inflation trade off at this juncture, whilst addressing rupee depreciation risks via intervention efforts.
“We expect another 25 bp rate cut at the April meeting and a total of 75 basis points in this cycle.
Looking ahead, while headline eases, core inflation is likely to head towards 4 per cent into early FY 26. We expect FY 25 inflation to average 4.8 per cent y-o-y, before easing to 4.1 per cent next year, assuming normal monsoons and low global energy prices”, Rao added.
She also highlighted that liquidity measures will need to be adequate to enable better transmission. The deficit in the banking system stood at an average ₹1.8 lakh crore this week.
Meanwhile, S&P Global Market Intelligence, in a research note, said “Considering the looming downside risks to growth, we expect the RBI to lower the repo rate by another 25 basis points in April, although additional easing beyond the second rate cut in 2025 may be difficult in the context of further rupee weakening and it’s impact on inflation”.
S&P Global Market Intelligence forecasts the Indian economy to grow 6.4 per cent in fiscal 2025-26, with the possible downside adjustment following the anticipated US responsive tariff action.