2 days Ago By Moneycontrol
The sharp drop in retail inflation in recent months will give the Reserve Bank of India (RBI) enough room to support growth amid rising global uncertainty by frontloading rate cuts in the coming months, economists have said. They expect the central bank’s monetary policy committee (MPC) to go for another 25 basis points (bps) cut when it meets for the bimonthly review in June. “Given that the RBI apparently does not want to link the accommodative stance with direct guidance on liquidity management, we now add one more 25 bps repo rate cut for 2025e (in 4Q'25), beyond the 25 bps repo rate cut that we are forecasting in June, resulting in 100 bps easing of the repo rate to 5.
5 percent,” said Kaushik Das, Managing Director, Chief Economist–India, Malaysia and South Asia, Deutsche Bank. Last week, the central bank reduced the key repo rate by 25 bps, the second such cut in a row, on a benign inflation outlook and moderate growth. It also shifted its stance from “neutral” to “accommodative”.
With the extent of the trade/tariff uncertainty difficult to fathom, monetary policy may need to do the heavy lifting in India by being more countercyclical, Madhavi Arora, lead economist, Emkay Global Financial Services, said. The US’ April 2 decision to slap the so-called reciprocal tariffs — including a 26 percent duty on Indian goods — against trading partners has upended global commerce. Though the tariffs have since been paused for 90 days, US President Donald Trump’s wild swerves have only added to the uncertainty amid a worsening trade rift with China India’s inflation eased to a 67-month low of 3.
34 percent in March, as prices declined further, data released on April 11 shows. March marked the second consecutive month that the retail inflation remained below the RBI’s target of 4 percent. The central bank’s monetary policy committee (MPC), which met from April 7 to 9, expects inflation to stay below 4 percent in the coming year.
The MPC revised the FY26 inflation forecast downward to 4 percent from 4.2 percent. The central bank also revised its Q1 forecast downward to 3.
6 percent from 4.5 percent and Q2 to 3.9 percent from 4 percent earlier.
There is now a greater confidence of a durable alignment of headline inflation, with the target of 4 percent over a 12-month horizon, RBI governor Sanjay Malhotra said. The central bank, hwoever, projected a GDP growth of 6.5 percent for FY26, revising down from 6.
7 percent forecasted in February. Economists said the proactive and substantial liquidity measures undertaken by the RBI indicate that short-term rates may drift below the repo rate in the coming months, mostly after the surplus dividend transfer by the RBI to government..
