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Informist, Friday, Jun. 13, 2025

 

By Pratiksha and Shubham Rana

MUMBAI – A 75-month low CPI inflation print of 2.82% in May has failed to provide clarity on the future path of interest rates in India, with economists divided on when or whether the Reserve Bank of India's Monetary Policy Committee will cut rates further after its jumbo 50-basis-point rate cut last week.

 

The only consensus right now is that the MPC will leave the repo rate unchanged at 5.50% when it next meets in August, according to an Informist poll undertaken after the release of the May CPI data. Beyond August, however, there is no consensus.

 

Of the 11 economists polled, 27% said they do not expect the MPC to lower interest rates further in this cycle, while 18% see a repo rate cut in December. Two participants said another 25 bps of rate cut is possible, but did not mention when it is expected. Only rating agency ICRA expects a 25-bps rate cut in October.

 

Last week, the RBI's MPC unexpectedly slashed the policy repo rate by 50 bps to 5.50% to accelerate economic growth. The committee also changed the policy stance to 'neutral' from 'accommodative', with RBI Governor Sanjay Malhotra Friday saying monetary policy now has limited space to support growth.

 

The MPC has lowered the repo rate by 100 bps in 2025 in a bid to support growth while inflation is seen aligning to the RBI's medium-term target of 4% on a durable basis. The RBI has also provided ample liquidity for faster transmission of lower interest rates to the real economy.

 

"The RBI's June policy communique clearly highlighted that incremental monetary easing has run its course," Kotak Mahindra Bank Chief Economist Upasna Bhardwaj said in a report. "We expect the RBI to pause from here on and any scope for further easing will open up depending on the growth-inflation trajectory." Bhardwaj expects GDP to grow 6.2% in the current financial year, 30 bps lower than the RBI's forecast and, therefore, does not entirely rule out the possibility of further easing in the latter part of FY26.

 

According to Aastha Gudwani, India chief economist, Barclays, while inflation is expected to moderate further to 2.1% in June, the recent rise in vegetable prices warrants caution. "Accordingly, we do not expect a cut in the August policy, given that the MPC has front-loaded its measures and has limited space left, having taken the repo rate to 5.5%, which we see as the terminal rate for this cycle," Gudwani said in a report.

 

The RBI has lowered its CPI inflation forecast for FY26 to 3.7% from 4.0%. Some economists, however, expect inflation to average even lower.

 

IDFC FIRST Bank Chief Economist Gaura Sen Gupta projects CPI inflation in FY26 at around 3.0% and believes there is space for at least another 25 bps of rate cut. "The timing of the cut is uncertain with the stance changed to neutral," Sen Gupta said. "This indicates that RBI will not be in a hurry to cut policy rates. Indeed, we expect RBI to stay on pause in August and October and cut policy rates in December." 

 

Following are the expectations of economists on the future of the repo rate trajectory:

 

ORGANISATION	EXPECTATION AT AUGUST MEETING	REPO RATE TRAJECTORY POST AUGUST
IDBI Bank	Status quo	Status quo till December
India Ratings and Research	Status quo	Rate cut in December
ICRA	Status quo	25 bps rate cut possible in October
Kotak Mahindra Bank	Status quo	Don't entirely rule out possibility of further easing in the latter part of FY26
CareEdge Ratings	Status quo	No  more rate cuts
Bank of Baroda	Status quo	No  more rate cuts
YES Bank	Status quo	Another 25 bps rate cut possible
CRISIL	--	Another 25 bps rate cut possible
Barclays	Status quo	No  more rate cuts
State Bank of India	Status quo	Status quo till December
IDFC FIRST Bank	Status quo	Rate cut in December

 

End

 

Edited by Avishek Dutta

 

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