RBI Likely to Cut Repo Rate by 25 bps in April Policy: MC Poll

Central Bank Poised for Rate Reduction Amid Easing Inflation

The Reserve Bank of India (RBI) is expected to cut the repo rate by 25 basis points (bps) in its upcoming monetary policy meeting on April 9, according to a recent Moneycontrol poll of 21 economists, treasury heads, and fund managers. The anticipated rate cut comes amid a declining inflation trend, which has provided room for the central bank to shift its focus toward supporting economic growth.

The repo rate, which currently stands at 6.25%, was last reduced in February 2024—the first rate cut in nearly five years. Market participants believe that lower Consumer Price Index (CPI) inflation and ongoing global uncertainties strengthen the case for another reduction in April. Experts predict that the Monetary Policy Committee (MPC) will maintain a ‘Neutral’ stance, allowing flexibility for future policy actions.

Experts See Inflation Control as a Key Factor in Rate Cut Decision

Economic analysts suggest that easing CPI inflation provides the RBI with an opportunity to focus on economic expansion, particularly amid challenges such as global geopolitical tensions, supply chain disruptions, and fluctuating commodity prices.

“We expect the MPC’s focus to shift from concerns about inflation to supporting growth. As a result, the MPC is likely to continue the rate-cutting cycle that began in February, with another 25 bps reduction in the repo rate during the April MPC meeting, while maintaining a neutral stance amid global headwinds,” stated a report by CareEdge.

Additionally, treasury heads highlight that liquidity management will be a crucial focus area for the RBI, as the liquidity deficit in the banking system remains a concern despite several measures introduced to address it. However, recent improvements in liquidity conditions have contributed to easing money market rates, further strengthening the case for a rate cut.

Monetary Policy Stance: ‘Neutral’ or ‘Accommodative’?

Most economists polled believe the RBI will continue with a ‘Neutral’ stance, which allows the central bank to remain flexible in either cutting or raising interest rates as needed. A minority of respondents, however, argue that a shift to an ‘Accommodative’ stance would be beneficial for a smoother transmission of policy rates to the economy.

“The stance is likely to be accommodative as this is essential for the smooth transmission of policy,” said Madhavankutty G, Group Chief Economist at Canara Bank.

A ‘Neutral’ stance suggests a balanced approach, where the RBI can adjust interest rates based on evolving inflation and growth dynamics. Typically, this approach is used when inflation and growth are seen as equally important factors in policy decisions.

On the policy tone front, all poll respondents expect the RBI to adopt a dovish approach, with assurances on maintaining adequate liquidity in the financial system.

“A dovish tone with an assurance of comfortable liquidity to the market is likely,” said V. Ramachandra Reddy, Treasury Head at The Karur Vysya Bank.

Inflation Projections Expected to be Revised Downward

Some economists believe that the RBI may lower its inflation projection for FY25, reflecting better-than-expected food price stability. However, analysts also caution that potential risks from monsoon variability, heatwaves, and adverse weather conditions could limit the extent of downward revision.

“FY25 CPI inflation estimate could be revised down marginally to 4.6% from the earlier 4.8%, given the recent comfort from food inflation. However, uncertainty related to monsoons and heatwaves persists,” said Gaura Sen Gupta, Economist at IDFC First Bank.

In its February monetary policy review, the RBI had projected retail inflation for FY25 at 4.8%, with estimates for FY26 at 4.2%. The CPI inflation forecast for Q4FY25 and Q1FY26 was also reduced, signaling an improving inflation outlook.

The latest projections for inflation assume a normal monsoon and expect a gradual decline in price pressures over the next two years. The RBI’s updated estimates for FY26 CPI inflation stand at 4.2%, with a quarterly breakdown as follows:

• Q1 FY26 – 4.5%

• Q2 FY26 – 4.0%

• Q3 FY26 – 3.8%

• Q4 FY26 – 4.2%

Growth Projections Likely to Remain Unchanged

Despite uncertainties in the global economy, the RBI is expected to retain its growth projection for FY26 at 6.7%, according to most economists surveyed. Experts argue that favorable domestic conditions, including robust agricultural output and industrial recovery, will help sustain India’s growth momentum.

“We expect the MPC’s FY26 GDP forecast to remain unchanged at 6.7% but expect the statement to cite downside risks due to global headwinds,” said Aastha Gudwani, India Chief Economist at Barclays.

In its February policy, the RBI projected India’s GDP growth for FY26 at 6.7%, with quarterly projections as follows:

• Q1 FY26 – 6.7% (previously 6.9%)

• Q2 FY26 – 7.0% (previously 7.3%)

• Q3 FY26 – 6.5%

• Q4 FY26 – 6.5%

Economic Drivers for India’s Growth in FY26

Economists highlight several supportive factors for India’s economic outlook in the coming fiscal year, including:

• Strong Rabi crop production, which is expected to support rural demand and consumption.

• Gradual recovery in industrial activity, boosted by improved private sector investments.

• Expansion in manufacturing and exports, aided by government initiatives such as PLI (Production Linked Incentive) schemes.

• Resilient domestic demand, with improving consumer confidence and business sentiment.

RBI Governor Sanjay Malhotra emphasized that while global uncertainties persist, India’s economic fundamentals remain strong, backed by robust domestic consumption and policy support measures.

Implications of the Expected Rate Cut

If the RBI proceeds with a 25 bps rate cut in April, it could have significant implications for credit markets, borrowing costs, and economic activity:

1. Lower Borrowing Costs: A repo rate cut reduces lending rates for businesses and consumers, stimulating investment and spending.

2. Boost to Housing and Auto Sectors: Lower interest rates encourage homebuyers and vehicle purchases, supporting real estate and automobile industries.

3. Encouragement for Business Expansion: With lower borrowing costs, corporate investments and capital expenditures may see an uptick.

4. Potential Rupee Impact: A rate cut may exert pressure on the Indian Rupee, depending on global monetary policy movements, particularly in the US and Eurozone.

Market Expectations and Investor Sentiment

Market participants are closely watching the RBI’s April policy decision, with equities and bond markets likely to react strongly to any shift in monetary stance. Stock indices, banking stocks, and government bond yields are expected to adjust based on the MPC’s policy tone and rate cut trajectory.

Analysts anticipate that a dovish stance, along with the expected rate cut, could support investor sentiment and encourage further capital inflows into the Indian economy.