RBI Expected to Cut Rates by 25bps

Economists are anticipating a 25 basis points cut in interest rates by the Reserve Bank of India (RBI) during its upcoming monetary policy meeting on April 9. This move comes despite the global trade uncertainties sparked by US President Donald Trump's tariffs.

Inflation and Growth Indicators

With inflation falling below RBI's projections and signs of easing growth, there's clear room for further monetary easing. Sonal Badhan, an economist at Bank of Baroda, notes, "Since the last meeting, inflation has come under control, which gives RBI more room to adopt a 'less restrictive' monetary policy and also support growth."

Policy Stance Shift

Badhan expects not only a 25bps rate cut but also a shift in policy stance to "accommodative," with a potential cumulative reduction of 75bps in this cycle. The global drop in crude oil prices and the decline in the dollar index add comfort to the rate-setting panel, with some, like Barclays, even seeing the possibility of a 35bps cut.

Domestic and External Risks

Radhika Rao of DBS Bank highlights the alignment of domestic data favoring rate cuts, with easing inflation and growth, and reduced depreciation pressure on the rupee. However, she cautions about persistent external risks, including trade distortions posing stagflationary risks to the US and potentially slowing global trade.

Barclays' Perspective

Aastha Gudwani, Barclays' India chief economist, projects a 25bps cut as the base case but mentions the possibility of a 35bps easing due to undershooting CPI inflation. Gudwani advises against a non-standard cut to avoid panic perceptions on growth, expecting inflation to ease to 4% in FY26 and the terminal policy rate at 5.5% by Dec 2025.