Ind-Ra Predicts RBI to Slash Repo Rate by 25 Bps in April, Anticipates 75 Bps Total Cut in FY26

As India navigates the complex economic landscape, the Reserve Bank of India (RBI) is poised to make a significant move in its upcoming monetary policy meeting. According to India Ratings and Research (Ind-Ra), a 25 basis point cut in the benchmark interest rate is anticipated, aimed at bolstering growth in the nation. With inflation expected to ease, the RBI’s decisions in the coming months could have a profound impact on the economy.

Interest Rate Cuts on the Horizon

Ind-Ra’s Chief Economist, Devendra Kumar Pant, shared insights on the inflation outlook for fiscal year 2025, predicting it will cool to around 4.7%. "While we foresee a minor easing of 75 basis points in FY26, unexpected external pressures, such as reciprocal tariffs from the US, could prompt the RBI to consider greater adjustments," Pant stated.

Upcoming Meetings and Expectations

The RBI’s monetary policy committee (MPC) is set to convene six times in the fiscal year spanning 2025-26, with the first meeting scheduled for April 7-9, 2025. Ind-Ra anticipates that the committee will likely implement a 25 basis point reduction during this initial session.

Historical Context: The RBI had previously raised interest rates by 250 basis points from May 2022 to February 2023 to tackle persistent inflation, bringing the policy rate to 6.5%.
In February 2025, a slight reduction of 25 basis points was enacted, lowering the repo rate to 6.25%.

Inflation Trends and Future Projections

Ind-Ra forecasts that retail inflation could dip below 4% in the March quarter of FY25, marking a significant milestone after 21 quarters of higher rates. They predict the RBI may execute a maximum of three rate cuts in FY26, totaling 75 basis points.

This could lead to an overall 100 basis point decrease in the current policy easing, with a target repo rate of 5.5%. If inflation averages around 4%, this would imply a real repo rate of 1.5% in FY26.

Balancing Growth and Inflation

The minutes from the February 2025 MPC meeting indicate the RBI’s awareness of the decelerating growth momentum. This suggests that while maintaining low and stable inflation remains a priority, supporting economic growth through monetary policy will increasingly become a focal point for the RBI moving forward.

As the RBI prepares for its next steps, market watchers will be keenly observing how these changes unfold and what they mean for the broader Indian economy.