A shallow rate cut cycle of 25-50 bps by the Reserve Bank of India (RBI) is expected, with further liquidity easing measures also possible, to boost growth, a report said on Monday. The RBI is projected to cut the repo rate by 25-50 basis points to 5.7 per cent going ahead.
The commencement of the rate cut cycle in February during the central bank’s Monetary Policy Meeting (MPC) was on expected lines, and the MPC minutes show how there was broad convergence in members’ views across the most pressing issues, according to the report by Emkay Global Financial Services.
The February meeting minutes showed a convergence in the views of members as all expressed a need for easing rates to support growth, with the improving inflation outlook providing room for this.
“Going forward, we expect a shallow rate cut cycle (another 25-50bps), along with the likelihood of easing of regulatory measures,” said the report.
All MPC members, internal and external, stated that the lower inflation trajectory in the past few months as well as the comfortable outlook going ahead provide the MPC with elbow room for a rate cut to support growth. According to a Kotak Research report, another 25-50 bps of rate cuts in FY26 is expected, given the RBI’s increased tolerance for the Indian rupee’s weakness, along with the inflation trajectory gliding toward the 4 per cent target without any supply shock.
According to RBI Governor Sanjay Malhotra, stronger policy frameworks and robust macro fundamentals remain the key to resilience and fostering overall macroeconomic stability.
Domestically too, there is a need to preserve the high growth momentum, while maintaining price stability, necessitating monetary policy to use various policy instruments to maintain the inflation-growth balance, he stressed at the MPC meeting.
The real GDP growth for the current year is estimated at 6.4 per cent, a softer expansion after a robust 8.2 per cent growth last year. Even though the GDP growth is expected to recover in the second half of 2024-25 and 2025-26 from 6.0 per cent recorded in the first half of 2024-25, the growth rate projected by various forecasts for 2025-26 varies from 6.3 to 6.8 per cent.
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