Will RBI Reduce Repo Rate by 100 Basis Points by 2025?
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Synopsis
Discover how the Reserve Bank of India's anticipated repo rate cut could influence the economy. According to Nomura's report, a significant decrease is on the horizon. Learn what this means for inflation, GDP growth, and fiscal policy in India as we approach critical meetings.
Key Takeaways
- RBI may cut repo rate by 100 basis points by 2025.
- Current GDP growth is below RBI's projections.
- Inflation remains below the target rate.
- Fiscal discipline is expected to continue.
- Monetary policy aims to support growth amidst global challenges.
New Delhi, June 3 (NationPress) The Reserve Bank of India (RBI) is anticipated to lower the repo rate by 100 basis points, shifting from 6 percent to 5 percent by the conclusion of 2025, as per a report from Nomura.
In its 'Asia H2 Outlook' report, the international brokerage highlighted a shortfall in both the gross domestic product growth (recorded at 6.2 percent against the RBI's forecast of 6.5 percent) and inflation (noted at 3.3 percent compared to the RBI's target of 4 percent).
Nomura indicated that this underperformance is a key reason behind its prediction of further cuts in policy rates, including the repo rate.
Ahead of Friday's decision regarding the repo rate, the firm expects a rate cut of 25 basis points in June, August, October, and December 2025.
Furthermore, Nomura projects that India will maintain its commitment to fiscal discipline. They stated, "We foresee the government adhering to fiscal prudence while allowing monetary policy to take the lead."
They also anticipate that the RBI will have enhanced flexibility regarding foreign exchange, particularly concerning the USD/INR rate. "The RBI is likely to bolster reserves in response to a weaker US dollar, which will limit the appreciation of the Indian rupee," Nomura noted.
The RBI's Monetary Policy Committee (MPC) is scheduled to convene from June 4-6. Analysts predict that the Central Bank will implement a third consecutive cut of 25 basis points as inflation remains below the median target of 4 percent.
The Reserve Bank has confirmed its commitment to managing liquidity in accordance with its monetary policy stance to ensure adequate liquidity for the economy's productive needs.
A favorable inflation outlook coupled with moderate growth supports a monetary policy that is conducive to growth while remaining vigilant about rapidly changing global macroeconomic conditions, as stated in the Central Bank's ‘2024-25 annual report’.
Notably, during its April meeting, the RBI's MPC unanimously agreed to reduce the policy repo rate by 25 basis points to 6.0 percent.
Point of View
I emphasize the importance of staying informed on the evolving monetary policies of the Reserve Bank of India. The anticipated repo rate cut reflects an adaptive strategy to bolster economic growth amidst global uncertainties. As we navigate these changes, our focus will always remain on providing insightful analysis that benefits our readers and stakeholders.
NationPress
08/06/2025
Frequently Asked Questions
What is the expected repo rate cut by RBI?
The RBI is expected to cut the repo rate by 100 basis points, lowering it from 6% to 5% by the end of 2025.
Why is the RBI considering a rate cut?
The rate cut is anticipated due to underperformance in GDP growth and inflation rates, as highlighted in a report by Nomura.
When will the RBI's Monetary Policy Committee meet?
The RBI's Monetary Policy Committee is scheduled to meet from June 4-6, 2025.
How will the rate cut affect inflation?
The expected rate cut aims to support economic growth while managing inflation, which is currently below the RBI's target.
What are the implications for the Indian rupee?
Nomura suggests that the RBI will manage foreign exchange flexibly, possibly limiting the appreciation of the Indian rupee due to a softer US dollar.
