Total 75 bps reduction likely in FY26.
The RBI's monetary policy committee is expected cut benchmark interest rate by 25 basis points in its policy review meeting next month to push growth, India Ratings and Research (Ind-Ra) said on Thursday.
"We expect the headline inflation in FY25 to cool off to 4.7 per cent. Monetary easing may be limited to 75 bps in FY26," Ind-Ra Chief Economist and Head Public Finance, Devendra Kumar Pant said.
However, if the impact of US reciprocal tariff turns out to be higher than expected, there may be higher easing by RBI, Ind-Ra said in a statement.
The RBI's monetary policy committee is scheduled to meet 6 times in the next fiscal 2025-26 beginning April 1. The first meeting is slated for April 7-9.
"Ind-Ra expects the monetary policy committee (MPC) to opt in for a 25bps cut in policy rates in its forthcoming April 2025 meeting," the rating agency said.
Higher and stubborn inflation had prompted the RBI to tighten the monetary policy, and it raised the policy rate by 250 bps between May 2022 and February 2023, reaching 6.5 per cent.
In February 2025, the repo rate was cut by 25 bps to 6.25 per cent.
Ind-Ra expects the headline retail inflation in March quarter of FY25 to fall below 4 per cent, after a gap of 21 quarters.
It expects RBI to go in for maximum three rate cuts in FY26, aggregating to 75 bps.
"These along with one rate cut in February 2025 would translate in a 100bps cut in the current policy easing with the terminal repo rate at 5.5 per cent and average inflation at around 4 per cent, which would translate in a real repo rate of 1.5 per cent in FY26," Ind-Ra said.
The February 2025 MPC minutes suggest that the RBI is cognizant of slowing growth momentum.
This suggests that while the low and stable inflation is the prime target of the RBI, the growth support through monetary policy will increasingly be a focus area of monetary policy, Ind-Ra added.
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