Significant reduction in inflation solidifies interest rate lowering in April
The Reserve Bank of India (RBI) has taken significant steps to boost the economy this year, with the Monetary Policy Committee (MPC) reducing the repo rate from 6.50% to 5.50% through two cuts totaling 100 basis points since February 2025[1][3]. However, the immediate future may see a pause in further rate cuts.
According to recent analyst predictions, the RBI might hold off on additional rate cuts for now. Yet, there's a possibility of another rate cut later in the fiscal year, potentially in the fourth quarter of 2025[3]. Some analysts even suggest that the RBI could "frontload" another 25 basis point cut, but most expect any additional cuts to be delivered in the second half of FY2026, depending on economic conditions[1].
The RBI's stance remains "neutral," indicating readiness to adjust policy based on evolving economic conditions[4]. This flexibility is crucial, as the Indian economy continues to navigate various challenges. For instance, the rupee has depreciated by 4% versus the USD since October, and food inflation reached a low of 3.7% in February 2025, the lowest reading since May 2023[5][6].
However, there are signs of improvement. The Index of Industrial Production (IIP) increased to 5% in January 2025, up from 3.5% in December[7]. This improved IIP growth is expected to contribute to faster gross domestic product (GDP) growth in the fourth quarter of the fiscal year, at 7.6%[8].
In addition to potential rate cuts, the RBI is also considering liquidity measures. For example, a cash reserve ratio (CRR) reduction, which could start in September 2025, has been proposed. This CRR cut will be implemented in four tranches, potentially enhancing liquidity ahead of the festive season[2]. These measures, separate from the repo rate adjustments, are aimed at supporting economic growth through increased lending capacity.
In summary, while there is no definitive expectation for an additional rate cut in the next fiscal year, there is a possibility of one should economic conditions warrant it. The RBI's focus on maintaining a "neutral" stance suggests flexibility to adjust policy as needed. These efforts, along with improved economic indicators, aim to foster a conducive environment for economic growth in India.
Sources:
- Business Standard
- The Hindu BusinessLine
- CNBC-TV18
- The Times of India
- Livemint
- Business Standard
- The Hindu BusinessLine
- CNBC-TV18
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