RBI likely to cut rates by 75 bps, starting with 25 bps in February monetary policy: SBI Research

Reserve Bank of India

The Reserve Bank of India (RBI) is expected to cut its policy rate by 75 basis points (bps) in the upcoming easing cycle, with two successive reductions in February and April 2025, according to an SBI Research report.

The report said the central bank will start the rate cutting cycle with a 25-bps cut in February monetary policy.

“Cumulative rate cut over the cycle could be at least 75 basis points, with two successive rate cuts over February and April 2025. with an intervening gap in June 2025, the second round of rate cuts could start from October 2025,” the report said.

On February 3, a Moneycontrol poll of bankers and economists also showed that the central bank will cut rate by 25 bps in February monetary policy as sluggish growth, government advance estimates, and a series of liquidity infusion measures have made the case for a rate cut.

A rate cut at this juncture is expected to give a reasonable boost to India's consumption demand. Seen against the backdrop of the income tax relief given to taxpayers earning up to Rs 12 lakh in the Union Budget, a rate cut at this point may go a long way in giving a sentimental thrust to consumption demand, according to economists.

The rate trajectory

The RBI left its policy repo rate unchanged for the 11th consecutive time in the December Monetary Policy Committee meeting, following a 250-bps increase from May 2022 to February 2023. Since April 2023, the repo rate has remained steady at 6.5 percent to control inflation and align it with the medium-term target of 4 percent.

While the repo rate has remained unchanged for almost two years, in October last year the MPC changed its stance from 'Withdrawal of accommodation' to 'Neutral' indicating that the rate setting team is open to tinkering with its approach to monetary management but not a rate cut just yet.

SBI Research in its report said that despite being on the upward trajectory, inflation may come down to 4.5 percent in Q4 FY25 and average 4.8 percent in FY25.

“Based on this trend, we expect FY26 inflation may come at 4.2-4.4 percent and core inflation in the range of 4.4 percent to 4.6 percent. By September 2025, core inflation may surpass headline inflation. Because of the base effect, headline inflation may average 3.6 percent to 3.8 percent in Q3 FY26,” the report said.