The Reserve Bank of India (RBI) is poised to cut key interest rates once again, with expectations of a reduction by up to 25 basis points during its upcoming monetary policy meeting. This anticipated move comes as inflation rates show signs of easing, prompting the central bank to adopt a more accommodative monetary policy stance aimed at stimulating economic growth amid global challenges.
The RBI's Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, will commence discussions on April 7, 2025, with the decision slated for announcement on April 9, 2025. This meeting marks the first monetary policy gathering for the financial year 2025-26 and follows a previous rate cut in February 2025, where the repo rate was slashed by 25 basis points to 6.25 percent. This was the first reduction since May 2020, reflecting a significant shift in the RBI's approach after two and a half years of steady increases.
As of now, the repo rate has remained unchanged at 6.5 percent since February 2023, but experts predict that the RBI is likely to respond to the recent economic landscape by adjusting rates once more. Bank of Baroda Chief Economist Madan Sabnavis noted that the current economic indicators suggest a conducive environment for another rate cut. He stated, "While it does look like conditions are rather clear for another 25 bps cut in repo rate this time with the inflation prospects being benign and liquidity having settled down, it is also expected that the stance will change to accommodative, meaning...that there could be more rate cuts in the offing during the course of the year."
The backdrop for this anticipated rate cut includes the recent announcement by U.S. President Donald Trump on April 2, 2025, regarding reciprocal tariffs ranging from 11 to 49 percent on approximately 60 countries, including India and China. These tariffs, effective from April 9, 2025, pose a potential threat to India's export growth and could influence the MPC's considerations as it assesses the overall economic climate.
Rating agency ICRA has also projected a 25 basis point cut in the upcoming MPC meeting while maintaining a neutral stance. They emphasized that while the RBI's liquidity interventions are expected to continue, there are unlikely to be significant announcements regarding liquidity injections, such as a Cash Reserve Ratio (CRR) cut during this meeting.
Industry body Assocham has suggested a more cautious approach, advocating for a wait-and-watch stance rather than an immediate rate cut. Assocham President Sanjay Nayar remarked, "The RBI has recently injected liquidity into the market through various measures...We need to be patient for these measures to have an impact on capex growth and consumption. Given this backdrop, we believe that the RBI is expected to hold rates steady during this policy cycle."
Despite external challenges, Nayar expressed optimism about the Indian economy's resilience, projecting a GDP growth of approximately 6.7 percent for the fiscal year 2025-26, with retail inflation expected to remain under control. Indeed, retail inflation has recently dipped to a seven-month low of 3.61 percent in February 2025, largely due to declining prices for vegetables, eggs, and other protein-rich foods. This decline creates additional room for the RBI to consider another rate cut in the near future.
Pradeep Aggarwal, founder and Chairman of Signature Global (India) Ltd, echoed the sentiment that a reduction in the repo rate could stimulate consumption and drive economic growth. He stated, "A lower policy rate serves as a catalyst for increased borrowing, encouraging more individuals to invest in home purchases, thereby boosting demand in the housing market." However, he cautioned that the effectiveness of this rate cut will significantly depend on how promptly and effectively commercial banks relay the RBI's policy changes to borrowers.
The upcoming MPC meeting will involve deliberations not only from the RBI Governor but also from two senior central bank officials and three members appointed by the government. This diverse group will assess various factors, including inflation forecasts, liquidity conditions, and the broader economic outlook, before making their decision.
As the RBI prepares to announce its decision, the economic landscape remains complex, influenced by both domestic and international factors. The potential for further rate cuts could be a double-edged sword; while it may stimulate growth, it also raises concerns about inflationary pressures in the future.
In summary, the RBI's upcoming monetary policy decision is highly anticipated, with many eyes on the potential impact of external tariffs and domestic inflation rates. As the committee meets, the balance between stimulating growth and maintaining economic stability will be at the forefront of their discussions.
