Care Edge Ratings anticipate a 25-basis-point cut in the repo rate at the April 7-9 Monetary Policy Committee (MPC) meeting, the second cut coming in its stride following February's historic cut. This shift by the Reserve Bank of India's monetary policy committee is expected to shift towards the growth-supporting stance from its inflation-fearful stand, starting April this year.
February recorded a retail inflation of 3.6%, the lowest level in seven months. Sustained lower prices mainly helped this decline: food and beverages prices slid to 3.8% in February from the top of 9.7% in October 2024. Prices of vegetables have also stabilized, resulting in overall moderation of inflation.
While India's economy appeared to recover with a healthy 6.2 percent growth in Q3 FY24 from a depressed 5.6 percent in Q2, there was still potential for the country.
Through numerous initiatives, including launching dedicated apps that grant access to economic data, the central bank has continued its old exercise of increasing transparency. For such growth-emphasis, the growth-inflation dynamic now paves the way for the central bank to give priority to economic expansion, distant from price stability concerns.
In February, the RBI reduced the repo rate by 25 basis points unanimously, from 6.5% to 6.25%. The first in many years, it can be interpreted as the rate cut after the COVID – 19 Pandemic Disaster, which eventually was approved, considering the possible moderating inflation and the growth-inflation concern.
The digital banking scenario has also shifted during the monetary policy transformation period. The RBI has enhanced its technological platform to focus on the fight against financial fraud mulehunter for banking fraud detection.
Care Edge predicts that despite the impending cut, the stance of the MPC will likely be maintained as "neutral" in view of global headwinds. The policy statement will come with a dovish undertone through education yet remaining watchful about the international scene.
Inflation is forecast to remain broadly around the RBI's 4% target for the next three quarters, leaving room for the central bank to address growth issues. Such stability of price levels enables more economic aspects to be considered for policy decision making.
A crucial external factor that would determine the path of monetary policy for the RBI would be global happenings. The RBI may have some space for a cut in rates on further grounds if the Federal Reserve cuts rates in the US in favor of its economy.
Moreover, these domestic objectives need to be matched with management of foreign exchange. Just now, new data from the RBI shows India's forex reserves dipping to an 11-month low with interventions to support the rupee.
| Sector | Likely Impact of Rate Cuts | Outlook |
| Banking | Pressure on net interest margins | Moderately negative |
| Real Estate | Lower borrowing costs stimulate demand | Positive |
| Consumer Durables | Improved sales through cheaper financing | Positive |
| Capital Goods | Boost to capex cycle | Moderately positive |
| Debt Markets | Bond yields may fall, prices rise | Positive for existing holders |
On April 2, the anticipated announcement regarding reciprocal tariffs from President Trump might hold a drastic impact on Indian markets as well as economic prospects in general. He has continued to expound tariff reciprocity since the beginning of his second term, proclaiming that the United States will match tariffs imposed by other countries such as India.
The Fair and Reciprocal Plan will add an interesting headwind for the export sector in India and potentially complicate RBI's monetary policy calculations.
With the many simultaneous developments an RBI front has to navigate through an increasingly complex global economic landscape, many watchers are likely to pay attention not only to the decision on the rate but also the guidance accompanying it.
For consumers, cuts in the policy rate mean reductions in interest costs associated with borrowing, or alterations to ATM transaction fees and other banking charges inflicted on bank customers that have recently been amended.
Therefore, the central bank is going to proceed with this accommodative paradigm as inflation measures come down and growth begins to take the driver seat. However, it should also be noted that uncertainties from abroad will require an even more delicate balancing act in the months to come.