RBI Likely to Cut Repo Rate by 25 Basis Points as Inflation Eases and Global Tariff Pressures Rise
The Reserve Bank of India (RBI) is widely expected to cut the key interest rate by 25 basis points in its upcoming Monetary Policy Committee (MPC) meeting, scheduled to begin deliberations on April 7, with the decision set to be announced on April 9. This move is being anticipated as a result of favorable economic indicators, including a significant dip in retail inflation, and growing global economic challenges stemming from newly announced US tariffs. According to industry experts and economists, a rate cut now would support an accommodative monetary policy stance, which is essential to stimulate domestic growth amid global uncertainties.
In February, the RBI had already made its first rate cut in over two-and-a-half years by reducing the repo rate by 25 basis points to 6.25%. This was the first downward revision since May 2020, marking a shift from the central bank’s earlier stance, which had kept the repo rate steady at 6.5% since February 2023. The latest inflation data has further strengthened the case for a rate cut, with retail inflation slipping to a seven-month low of 3.61% in February. This decline was mainly due to easing prices of vegetables, eggs, and other protein-rich items, offering the RBI more headroom to ease policy further.
Bank of Baroda Chief Economist Madan Sabnavis noted that the upcoming policy announcement comes at a time of multiple global and domestic developments. The new reciprocal tariffs announced by the US, ranging from 11% to 49% on goods from around 60 countries including India and China, could impact global trade flows and economic growth. These tariffs, set to take effect from April 9, have raised concerns about the export competitiveness of Indian industries. However, experts also believe India has an opportunity to gain ground in exports, as competing countries like China, Vietnam, Bangladesh, Cambodia, and Thailand face higher duties.
Sabnavis further stated that with inflation remaining benign and liquidity conditions stabilizing, the RBI is likely to adopt an accommodative stance, suggesting more rate cuts could follow during the course of the year. This sentiment was echoed by rating agency Icra, which also predicted a 25 basis point cut in the upcoming meeting. However, Icra expects the central bank to maintain a neutral stance rather than a fully accommodative one and does not anticipate any major announcements related to liquidity injections, such as a CRR (Cash Reserve Ratio) cut. Instead, the RBI’s recent liquidity measures, including interventions aimed at offsetting the drain from the unwinding of forward positions and maturity of long-tenor VRRs (Variable Rate Repos), are seen as efforts to accelerate rate transmission.
Despite the growing consensus around a rate cut, some voices within the industry are urging caution. Industry body Assocham has advised the RBI to adopt a wait-and-watch approach, arguing that the recent liquidity infusions should be given time to impact capital expenditure and consumption patterns. Assocham President Sanjay Nayar emphasized that the Indian economy remains resilient, projecting a GDP growth of around 6.7% for FY26, and highlighting that inflation appears to be well within the RBI’s comfort zone.
Meanwhile, real estate developers are welcoming the anticipated rate cut. Pradeep Aggarwal, Chairman of Signature Global (India) Ltd, said a lower policy rate would encourage borrowing and increase investments in housing, thereby boosting demand in the real estate market. However, he also pointed out that the effectiveness of such a cut would largely depend on how promptly commercial banks pass on the benefits to consumers.
The MPC, led by RBI Governor Sanjay Malhotra, includes two other central bank officials and three members appointed by the government. As economic uncertainties continue to rise due to international developments and domestic recovery remains gradual, all eyes are now on the RBI’s decision on April 9, which could shape the monetary trajectory for the rest of the year.
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