RBI may cut interest rates to 5.5% by 2025-end: Report
What's the story
Indian economists foresee a possible cut in the Reserve Bank of India (RBI)'s repo rate to 5.5% before 2025 ends—a level not seen since August 2022, as per CNBC-TV18.
This is due to falling inflation and slow economic growth.
"The way MPC will probably look at it is that from a risk minimization perspective, the downside risk to growth is much higher than the upside risk to inflation," Samiran Chakraborty, Chief Economist for India at Citi, said.
Economic indicators
Inflation and economic growth as determining factors
Historically, central banks cut interest rates when inflation is low or growth is slow.
However, high inflation has made it difficult for any central bank to go for such cuts.
Since September 2019, India's monthly retail inflation has remained above the RBI's comfort level of 4%, except on three occasions, one of which was in February 2025.
Impact
RBI's potential repo rate cut: A boon for Indian industry
With inflation likely to stay under control for a few months, the RBI could have enough dry power to help Indian industries with cheaper loans during tough times.
Recent trends in Manufacturing Purchasing Managers' Index (PMI) indicate that the Indian industry was the strongest among all major Asian economies in the past few months.
If these rate cuts materialize, translating into cheaper loans, it could help keep this momentum going.
Liquidity issue
Intervention amid liquidity crisis
India's lending was affected for months due to a prolonged liquidity squeeze, which restricted banks' capacity to extend new loans at reasonable interest rates.
The RBI stepped in January by purchasing dollars from the market and pumping more domestic currency into the system.
Sonal Varma, Managing Director and Chief Economist for India and Asia ex-Japan at Nomura, sees this as an effective change in monetary policy stance.
Future meetings
Upcoming meeting and repo rate cut
After its Monetary Policy Committee (MPC) meeting from April 7-9, the RBI is expected to announce a 25 basis points (bps) cut in the repo rate to 6%, a Mint poll of economists found.
Barclays Bank economists did not rule out even a 35-bps cut.
This would be the second consecutive reduction in the repo rate after February 7, when it was first reduced by 25 bps since May 2020.