RBI interest rate cuts expected, repo rate to hit 5.5% in FY26: HSBC

New Delhi, Apr 16 (IANS): The Reserve Bank of India (RBI) has already started the cycle of cutting interest rates. A latest report by HSBC Global Research said on Wednesday that interest rates are expected to be cut by 25-25 basis points in the RBI's policy meeting of June and August. HSBC expects the repo rate to fall to 5.5 per cent this fiscal. Apart from this, it is expected that the situation of easy liquidity will remain and the benefit of interest rate cuts will be passed on to the people. CPI inflation stood at 3.3 per cent in March, lower than the market's expectation of 3.5 per cent. Food prices continued to deflutter for the third month in a row, 0.7 per cent lower than the previous month, due to lower prices of vegetables, pulses, eggs, fish and meat.

The gradual movement in cereals and milk prices remained normal, while sugar and fruits prices remained high. "The April inflation figure is close to March levels. Vegetable prices have come down by 0 to 5 per cent (month-on-month) in the first 10 days of April due to a steep fall in onion and tomato prices. HSBC has projected CPI headline inflation to average 3.7 per cent in FY26, much below the RBI's target and forecast of 4 per cent.

Food inflation is likely to decline from April onwards with the arrival of new wheat crop in the market. Also, the IMD has released a 'normal' monsoon forecast for 2025. The report said that core inflation is also expected to remain soft due to the recent strengthening of the rupee, comparative decline in the prices of imported goods from China, soft oil prices and weak domestic growth. At the wholesale level too, March prices remained normal, while wholesale inflation eased faster than CPI inflation for core categories.

The Index of Industrial Production (IIP) grew by 2.9 per cent year-on-year in February, lower than the market's expectation of 3.6 per cent. "Our framework of 100 indicators of growth suggests that the March quarter is better than the previous two quarters, but well below June 2024," the report said. "