The Reserve Bank of India (RBI) is expected to cut repo rate by 25-50 basis points (Bps) to 5.7 percent going ahead amid concerns over growth, said economists.
Further, they added that the central bank announce further liquidity measures due to expectation of continuous liquidity tightness.
“Going ahead, however, we only expect a shallow rate cut cycle of 25-50bps, with further liquidity easing measures also possible,” said Madhavi Arora, chief economist at Emkay Global Financial Services said.
Additionally, Kotak Research report expect another 25-50 bps of rate cuts in FY26, given the RBI’s increased tolerance for Indian rupee weakness, along with the inflation trajectory gliding toward the 4 percent target sans any supply shock.
The hope for another rate cut has increased after the concerns showed by the monetary policy committee (MPC) members in the February policy minutes, and easing inflation trajectory.
"There has been a shift in the domestic growth inflation balance since the December 2024 policy – while the inflation registered sequential softening, growth outcomes were weaker. Heightening uncertainties, emanating from the global financial markets and trade policies too cloud the outlook for domestic growth and inflation," said RBI deputy governor M Rajeshwar Rao.
Further, RBI governor Sanjay Malhotra said that given the macroeconomic outlook when inflation is expected to align with the target, and recognising that monetary policy is forward-looking, he views a lower policy rate to be more appropriate at the current juncture.
The central bank in February monetary policy cut repo rate by 25 basis points (bps) to 6.25 percent, while the rates for the Standing Deposit Facility, Marginal Standing Facility, and bank rates remained at 6.5 percent.
The RBI has increased the repo rate by 250 basis points between May 2022 and February 2023. Since April 2023, the repo rate has been steady at 6.5 percent, in order to keep a check on the inflation to bring it to the medium-term target of 4 percent.
The central bank projects a real GDP growth of 6.7 percent for FY26.
Prior to this, Economic Survey 2025 estimated a real GDP growth of 6.4 percent in FY25, 20 bps lower than the projection by the RBI in its December monetary policy.
The Survey also highlighted that the country's real GDP growth is expected to grow at 6.3-6.8 percent in FY26, signaling "moderate prospects buffeted by multiple headwinds, including a looming global trade war and artificial intelligence (AI)-induced disruptions".
Kotak report said that MPC members agreed that an easing monetary stance would complement the tax cuts in the FY2026 Union Budget to support growth.
The external members noted the subsequent downward revision of the RBI’s growth forecast for FY2025. Nagesh Kumar stated that “moderation in urban consumption affecting demand for durable goods, and slow growth of private investment is causing the weakness in the manufacturing sector”. Ram Singh stated that subdued real wage growth has led to a slowdown in private consumption.
Separately, Saugata Bhattacharya emphasized the need to reduce interest costs for small enterprises.
Further, the liquidity which has been under the spot light since past two months despite support provided by the RBI, is likely to get further support in the coming days, economists added.
The central bank in the past few months have announced slew of measures to support liquidity in the banking system, with tools such as daily variable rate repo (VRR), open market operations (OMO) purchases of government securities, and USD/INR buy/sell swap auction.
Despite this, liquidity still remain in the huge deficit of around Rs 2.34 lakh crore.
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