The Reserve Bank of India (RBI) may cut interest rates by 50 bps in 2025 and shift its policy stance from "neutral" to "accommodative," according to a report by Bank of Baroda. The report also notes that the central bank is already inside a rate-cutting cycle and there may be more cuts ahead though it won't possibly say at what time.
Recent rate cut and monetary policy adjustments
The RBI earlier this month had cut the repo rate by 25 bps to 6.25%, an event that was its first reduction in five years. For instance, the Monetary Policy Committee had, through a unanimous decision, also reduced the Standing Deposit Facility (SDF) rate to 6% and the Marginal Standing Facility (MSF) rate to 6.5%.The policy stance remained "neutral," even after the rate cut.
Trend in Inflation as well as outlook of the economy
The report projects a cumulative rate cut of 75 bps in 2025. It expects inflation to reach 4.4% in the fourth quarter of FY25 and 4.5% in the first quarter of FY26. Inflationary pressures are likely to ease from the second quarter of FY26, leaving more room for further cuts. In addition, the report considers rupee volatility in its inflation projections.
Growth and borrowing costs implications
Lower interest rates reduce the cost of borrowing for businesses and consumers, which might spur investments and spending. The expected change in stance to "accommodative" would suggest the RBI is placing even more emphasis on economic growth.
Key upcoming policy review
The April monetary policy review will therefore be a turning point in knowing the next line of action the RBI is to take. They will keep monitoring the inflationary and growth trajectories before further lowering of interest rates or changing its policy stance.