Expect RBI to cut rates in April and June, cumulative 100 basis points in 2025: SBI Research

The Reserve Bank of India (RBI) could lower interest rates by a cumulative 100 basis points in 2025 as inflation moderates to multi-month lows and economic indicators signal easing price pressures, according to a report by the SBI Research released on Wednesday.

The Ecowrap report forecasts that the RBI’s Monetary Policy Committee (MPC) might cut the lending rate by 25 basis points in April and June, followed by a potential third cut in October.

The projection hinges on inflation remaining below the RBI’s 4% target, supported by declining food prices and stable core inflation.

India’s retail inflation declined to a seven-month low of 3.61% in February 2025, down from 4.26% in January, the data released by the National Statistical Office (NSO) showed. The year-on-year inflation rate recorded a provisional 3.61% for February 2025 compared to the same month last year, the lowest headline inflation since July 2024.

Food inflation, measured by the All India Consumer Food Price Index (CFPI), fell to 3.75% in February 2025 from 5.97% in January.

“With benign inflation this month and going forward, we expect a cumulative rate cut over the cycle could be at least 75 basis points, with successive rate cuts in next policy April and August 2025. With an intervening gap in Aug’25, the rate cuts cycle could restart from Oct’25,” SBI Research said.

In February, the RBI announced a 25 basis point cut in the repo rate to 6.25%, a first since the Covid-induced rate cuts in 2020. RBI Governor Sanjay Malhotra said the rate-setting panel unanimously decided to continue with a 'neutral' monetary policy stance.

The central bank started a rate hike cycle in May 2022 to tame inflation in the wake of the Russia-Ukraine war and paused it only in May 2023.

The report also highlighted a 6.8% growth in industrial production and steady corporate earnings as positive signals for India’s economy, despite global headwinds.

The RBI’s next MPC meeting, scheduled for early April, will be closely watched for signals of a policy pivot. Any decision to lower rates could influence borrowing costs, spur investment, and provide relief to consumers grappling with high interest rates on loans.