Synopsis
HSBC Global Research predicts a 25 basis point reduction in the RBI's repo rate during upcoming policy meetings, bringing it down to 5.5% in FY26, with CPI inflation expected to average 3.7%. The report also emphasizes favorable liquidity conditions and declining food inflation.Key Takeaways
- RBI to cut repo rate to 5.5% this fiscal year.
- CPI inflation in March was 3.3%, lower than expected.
- Food prices have shown consistent deflation.
- April inflation trends are similar to March's.
- WPI inflation is decreasing more rapidly than CPI.
New Delhi, April 16 (NationPress) The Reserve Bank of India (RBI) has initiated a cycle of rate reductions, with a report from HSBC Global Research released on Wednesday predicting a 25 basis point cut during both the June and August policy meetings, lowering the repo rate to 5.5 percent in this fiscal year (FY26).
Additionally, the report anticipates that liquidity conditions will remain favorable, aiding the implementation of these rate cuts.
The Consumer Price Index (CPI) inflation rate for March was recorded at 3.3 percent, which was below the market forecast of 3.5 percent.
Food prices saw deflation for the third consecutive month, declining 0.7 percent compared to the previous month, primarily due to the reduction in prices for vegetables, pulses, and protein sources like eggs, fish, and meat.
The trend in cereal and milk prices remained stable, while sugar and fruit prices exhibited significant increases.
“The inflation data for April is showing a trend similar to March levels. In the first ten days of April, vegetable prices have decreased by 0 to 5 percent month-on-month, driven by significant drops in the prices of onions and tomatoes,” the HSBC report noted.
The report forecasts the average CPI headline inflation for FY26 to be 3.7 percent, significantly below the RBI's target and forecast of 4 percent.
Food inflation is expected to decline further starting in April as the new wheat harvest becomes available in the market.
“Moreover, the Indian Meteorological Department (IMD) has predicted a 'normal' monsoon for 2025. Core inflation is also likely to remain subdued, influenced by the recent strengthening of the rupee, deflationary imports from China, lower oil prices, and a slowdown in domestic growth,” the report elaborated.
At the wholesale level, March saw a continued trend of moderated prices, with Wholesale Price Index (WPI) inflation decreasing more rapidly than CPI inflation across core categories.
The February Index of Industrial Production (IIP) recorded an annual growth of 2.9 percent, which fell short of the market expectation of 3.6 percent.
“Our analysis, based on 100 growth indicators, indicates that the March quarter appears stronger than the previous two quarters but remains significantly lower than June 2024 (with 66 percent of indicators in the positive compared to 62 percent in the December quarter),” the report concluded.
