With the tariff war posing new challenge to growth and not to inflation, the Reserve Bank-led monetary policy panel that begins the three-day meet here on Monday is likely to take more growth-inducing measures and not just deliver another 25 bps reduction in the repo rate, say Mint Road observers.
If it cuts the repo rate again on Wednesday this will be the second consecutive rate cut and will take the key policy rate to 6 %. The first repo cut was delivered in the February meeting and came in after a gap of almost five years. And since then, the inflation print has been comforting and recorded a seven-month low of 3.6% in February and the same is projected to print in under 4 % in March.
“We expect the MPC to reduce the repo rate by 25 bps this week, as inflation continues to moderate. We see CPI inflation averaging at 4.2% in FY26,” Aditi Nayar, the chief economist at Icra Ratings told TNIE.
She also expects another 25 bps reduction in the policy rate in the June or August policy review, based on the evolving growth inflation dynamics.
Tanvee Gupta Jain, the chief economist at UBS Securities India also thinks the RBI is unlikely to be holding the rates saying, “we maintain our view that there is scope for a further 50 bps cut in the repo rate in this cycle. Besides ensuring currency flexibility, we expect continued monetary policy support in terms of rate cuts (scope of more policy easing than our base case), liquidity support and regulatory easing.” Similarly, DK Pant, the chief economist at India Ratings, too, expects another rate cut 25 bps on Wednesday.
“With the inflation intensity declining and expectation of inflation trending towards 4%, we expect a 25 bps rate cut in April monetary policy,” Pant told TNIE.
According to Radhika Rao, the executive director & a senior economist at DBS Bank, the RBI will shift its focus from inflation fighting to supporting growth from now on, as the punitive tariffs will slow global growth for one and the lingering geopolitical tension will continue to pose challenges to domestic growth momentum. Moreover, inflation is unlikely to overshoot the target this fiscal.
“Given these, we expect the MPC is likely to continue with the rate-cutting cycle that began in February, and will deliver another 25-bps reduction in the repo rate this week, while maintaining the neutral stance amidst global headwinds,” Rao said. Echoing similar views, Rajni Sinha of Care Rating also said lower inflation has paved the way for another 25 bps rate cut this week.
Rahul Bajoria, head of economic research at BofA Global Research, said, “With sub-4% CPI inflation and sub-7% GDP growth, the hurdle for MPC to cut rates again this week is very low. So, we expect another 25 bps cut in the repo rate to 6%, and continue to expect 5.50% as terminal rate by October.”
He said the path for further policy easing appears quite clear and straightforward, with growth likely to be seen in a range that’ is deemed non-inflationary, headline inflation likely to be sub 4% for next few months, and the pressure on exchange rate coming down substantially. This ongoing cohesion in economic data should help the Reserve Bank and its monetary policy committee to reduce policy rates again this week, taking the repo rate to 6%, by cutting it by 25 bps, he added.