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Informist, Thursday, Apr. 3, 2025

 

By Shubham Rana

NEW DELHI - The Reserve Bank of India's Monetary Policy Committee is widely expected to cut interest rates again next week, according to an Informist poll, as efforts mount to support economic growth at a time when inflation is seen close to the central bank's 4% target in the near term.

 

All 15 economists polled by Informist said they expect the MPC to lower the repo rate by 25 basis points to 6.00% on Wednesday after it delivered the first rate cut in nearly five years in February. The MPC will begin its three-day meeting on Monday, and Governor Sanjay Malhotra will announce the decision at 1000 IST on Wednesday.

 

"As the RBI MPC is faced with inflation and growth outcomes that are below their estimated trajectory, it opens policy space to deliver a second successive policy repo rate cut," Barclays economists led by Aastha Gudwani said in a note on Wednesday.

 

Since the February monetary policy decision, retail inflation has fallen sharply, with data released last month showing the headline number had slumped to a seven-month low of 3.61% in February. Economists expect CPI inflation to be below 4% in March as well, which would result in the average for Jan-Mar undershooting the RBI's forecast of 4.4% by at least 40 bps.

 

This, according to Barclays' economists, makes a "strong case for the MPC to deliver a non-standard 35 bps cut" next week. "We are mindful that a non-standard cut could suggest panic on growth, but we advise against this perception. In our view, a 35 bps cut should be seen as a compensation for keeping the stance as 'neutral' (given continued global uncertainty), while acknowledging the downside risks to inflation and growth," they said.

 

While Barclays expects the MPC to retain its neutral stance on Wednesday, some others think the committee may move to accommodative from neutral in the next couple of months, especially with the RBI infusing tremendous amounts of durable liquidity into the banking system.

 

"The RBI's aggressive liquidity easing measures suggest a strong intent on ensuring smooth monetary transmission as it continues on its rate easing path," Kotak Mahindra Bank said Tuesday. "Based on our estimates of muted FY26 growth and a comfortable inflation trajectory, we continue to expect 25 bps of rate cuts each in the April and June policies, accompanied by a stance change to accommodative."

 

The extent of the MPC's concerns about growth was illustrated by the minutes of the February meeting, which saw external member Nagesh Kumar saying the committee could be "more ambitious and target a 50 bps cut" as it would send the signal that "India is serious and would do whatever it takes to revive economic growth momentum".

 

Data released after the February meeting of the MPC showed India's GDP growth rose to 6.2% in Oct-Dec from 5.6% in Jul-Sept. However, economists are not confident the statistics ministry's second advance estimate of 6.5% for FY25 will be met as it implies a sharply higher GDP growth rate of 7.6% in Jan-Mar.

 

According to Teresa John of Nirmal Bang Institutional Equities, early data for February suggests that 63.2% of indicators were up on a year-on-year basis compared to 83.9% in January. On a month-on-month basis, 47.4% of indicators were up in February, down from 61.3% in January. "Our proprietary output index continues to indicate that the cyclical moderation persists although growth may be bottoming out," John said.

 

To be sure, economists also warned the MPC may choose to stay in neutral mode given the global uncertainty caused by the US' aggressive trade policies under President Donald Trump. The US President has announced the imposition of reciprocal tariffs for several countries, and said Washington will levy 26% tariffs on imports from India. According to Barclays' economists, the RBI will not want markets to price in a "deeper, quicker easing cycle" that could be interpreted from the loosening of the stance.

 

The following are expectations of respondents from the Apr. 7-9 meeting of the MPC:

 

ORGANISATION	REPO RATE EXPECTATION
Acuite Ratings and Research	25 bps cut
ANZ Bank India	25 bps cut
Bank of America Securities	25 bps cut
Barclays	25 bps cut
Capital Economics	25 bps cut
CareEdge Ratings	25 bps cut
ICICI Bank	25 bps cut
ICICI Securities Primary Dealership	25 bps cut
IDFC First Bank	25 bps cut
Kotak Mahindra Bank	25 bps cut
Nirmal Bang Institutional Equities	25 bps cut
Nomura	25 bps cut
Societe Generale	25 bps cut
STCI Primary Dealer	25 bps cut
Sunidhi Securities & Finance Ltd	25 bps cut

 

End

 

Edited by Vandana Hingorani

 

 

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