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Informist, Friday, Apr. 11, 2025

 

MUMBAI – The Reserve Bank of India is widely seen cutting the repo rate by 25 basis points in both June and August, following the Monetary Policy Committee's decision to loosen its stance to accommodative on Wednesday. According to a poll of 12 economists, all but one of them are predicting a third consecutive rate cut in June, with Barclays admitting a status quo on rates at the MPC's next meeting "is a close call".

 

"We have long held the view that this easing cycle was not shallow and terminal rates would settle around neutral (around 5.5%)," Nomura's Sonal Varma and Aurodeep Nandi said. "However, with growth below potential, falling oil prices and inflation durably aligned to target, policy rates will need to move into the accommodative zone. Hence, we are lowering our terminal rate forecast to 5.00%." Nomura sees the repo rate at 5.00% by the end of 2025, with the MPC cutting it by 25 bps in June, August, October, and December.

 

The MPC's upcoming interest rate decisions in 2025 are scheduled for Jun. 6, Aug. 7, Oct. 1, and Dec. 5.

 

To be sure, economists from Kotak Mahindra Bank are the only other ones who think the repo rate could end up being lowered to as much as 5.00% in the current cycle. "Given our growth-inflation mix and the RBI's tolerance for two-way INR moves, we pencil in another 75-100 bps of repo rate cuts to 5.00-5.25% by end-2025-26 (Apr-Mar)," they said in a note Wednesday. However, several others now see the terminal repo rate lower than they did before the RBI's latest interest rate decision. Elara Capital's Garima Kapoor, for instance, expects the repo rate to close FY26 at 5.25% as against 5.50-5.75?rlier.

 

The RBI earlier this week cut its GDP growth as well as CPI inflation forecast for FY26 by 20 bps each to 6.5% and 4.0%, respectively, as the MPC cut the repo rate by 25 bps for the second meeting in a row to 6.00%. At the policy press conference, Governor Sanjay Malhotra said the central bank was more concerned about the impact of the US' tariffs on India's growth than inflation. This is reflected in economists' latest forecasts: while the median of their estimates show headline retail inflation in FY26 is seen largely in line with the RBI's projection of 4.0%, GDP growth this year may be lower at 6.2%, with estimates for the latter in the range of 5.8-6.5%.

 

"We pencil in another rate cut of 25 bps in the June policy. Furthermore, we see risks of a deeper rate cut cycle, with additional 50-75 bps rate cuts, if domestic growth remains lacklustre/weakens from here on," Morgan Stanley economists Upasana Chachra and Bani Gambhir said in a note. The duo see a downside risk of 30-60 bps to their growth forecast of 6.5% for FY26 primarily from the second-round impact of hit to investor confidence and investment cycle.  End

 

Reported by Siddharth Upasani

Edited by Akul Nishant Akhoury

 

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