RBI may cut interest rates further as inflation outlook improves
What's the story
The Reserve Bank of India (RBI) has hinted at the possibility of future rate cuts, a recent report by Crisil Intelligence said. The indication comes as the central bank's monetary policy committee (MPC) has sharply revised its inflation forecast downward. On October 1, RBI had kept its policy interest rate unchanged at 5.5% for the second consecutive time due to tariff uncertainties.
Economic outlook
US tariffs may impact GDP growth
The report further noted that the MPC expects GDP growth to face downside risks in H2 of FY 2025-26, owing to US tariffs. However, it also said that the recent rationalization of GST rates will mitigate some of this impact. "Certain labor-intensive sectors are most vulnerable to the impact of US tariffs and need policy support," Crisil Intelligence said in its report.
Rate adjustments
RBI has reduced repo rate by 100bps since February
Since February, the RBI has cut the policy rate by 100 basis points. In its last policy review in June, it had reduced the repo rate by 50 basis points to 5.5%. The government has tasked the central bank with keeping Consumer Price Index (CPI)-based retail inflation at 4% with a margin of 2% on either side.
Inflation control
Retail inflation hits 6-year low in August
On the MPC's recommendation, the RBI cut the repo rate by 25bps each in February and April, and by 50 basis points in June. These cuts were made amid a decline in retail inflation. Retail inflation has been below 4% since February this year, hitting a six-year low of 2.07% in August due to falling food prices and a favorable base effect.