More Repo Rate Cuts on Horizon? RBI May Shift to 'Accommodative' Stance

The Reserve Bank of India (RBI) is likely to cut repo rates further by 50 basis points (bps) in this year said a Bank of Baroda report as reported by news agency ANI. It also indicated that the central bank may also change its policy stance from "neutral" to "accommodative".

"As RBI embarks upon the rate cut cycle, it can be expected that more cuts are also on the cards, while the timing can be debatable. Cumulatively, we are pricing in 75bps cut in this calendar year," the report said.

The next policy review, scheduled in April, will assess the economic situation and could lead to another rate reduction or a change in policy stance.

The report projected that the inflation will remain at 4.4% in Q4FY25 and 4.5% in Q1FY26. However, it said, the inflationary pressures are likely to ease from the second quarter of FY26 onwards, creating more room for further rate cuts.

The Bank of Baroda report also highlighted that rupee volatility factored into inflation projections.

It also noted that with the expected decline in inflation from mid-2025, the RBI is likely to reduce rates further.

RBI Cuts Repo Rate to Boos Growth

The central bank reduced the repo rate by 25 bps to 6.25% after five years since COVID-19 during its last Monetary Policy Committee (MPC) meeting on Friday.

This came amid concerns around India's slowing growth rate and calls from various fiscal policymakers to reduce the rate including finance minister Nirmala Sitharaman.

The repo rate or the interest rate is the level at which the central bank lends to commercial banks.

Announcing the decision post its MPC meet, RBI governor Sanjay Malhotra said that the bank was keeping its policy stance "neutral", which would open more space to support growth, signalling further rate cuts.

The decision came days after the central announced various measures to ease cash shortage including an injection of $18bn into the domestic banking system.

Previously, former RBI governor Shaktikanta Das reduced the cash reserve ratio, the reserves commercial banks need to maintain with the RBI, to 4% from 4.5% to address liquidity woes in December last year.

India's growth is projected to grow at a four-year low of 6.4% in FY25.