RBI may cut repo rate by 50-75 bps in FY26 to support consumption, lower borrowing cost: Crisil

Reserve Bank of India

The Reserve Bank of India (RBI) is expected to cut benchmark rates by 50-75 basis points (bps) during 2025-26 to support consumption and lower borrowing costs, Crisil India Outlook 2025 report has said.

Lower interest rates are expected to mildly support consumption, as these gradually get transmitted on to other interest rates in the economy, thereby lowering borrowing costs, the report added.

The central bank, during its February monetary policy, had reduced repo rate by 25 basis points (bps), a first in almost five years in order to boost a slowing economy. This was done after holding the repo rate at 6.50 percent for 11 consecutive policies. The RBI increased the repo rate by 250 basis points from May 2022 to February 2023. Since April 2023, the repo rate has been steady at 6.5 percent, in order to keep a check on inflation and to bring it with in the medium-term target of 4 percent.

On the growth front, the Crisil note said that in the next financial year, growth will be supported by easing monetary policy and government measures to boost private consumption. The budgeted 10.1 percent increase in government capital expenditure (capex) will also be supportive.

Growth will be steady next fiscal compared to FY25 despite overall lower fiscal impulse as the government narrows the fiscal deficit to 4.4 percent of gross domestic product (GDP) from the revised estimate of 4.8 percent, report said.

Emerging global risks remain key monitorables, posing risk to export as well as add to the uncertainty, something that is detrimental to a broad-based private sector investment revival, report added.

The Indian economy recovered in the December quarter to grow at 6.2 percent after sinking to a seven-quarter low of 5.6 percent in the July-September period, as per data released on February 28.

Most of the growth pick-up in the Q3FY25 came from agriculture and services sector. On the expenditure side, there was a pick up for both private and government consumption, but capital formation remained muted at 5.7 percent, compared with 5.8 percent in the previous quarter.

This also has a bearing on full year numbers, which show fixed capital formation slowing to 6 percent from 9.8 percent, even as private consumption picked up from 5.3 percent in FY24 to 6.8 percent in FY25.

CRISIL report also expect that inflation to ease further in FY26.

Rabi sowing has progressed well so far and was up 1.5% on-year as on February 4. This augurs well for food supplies in fiscal 2026, report said.

The downturn in prices of crude oil and other key commodities will keep core inflation within the RBI’s comfort zone. CRISIL Intelligence expects crude oil prices to average $70-75 per barrel in fiscal 2026, down from $78-83 per barrel in fiscal 2025, report added.