Cooling Inflation Strengthens Argument for Possible RBI Rate Cuts

Synopsis

India’s inflation rate decreased to 4.31% in January, nearing the RBI’s target. This trend supports the argument for potential rate cuts as the repo rate stands at 6.25%, according to a recent report. Investor sentiment appears cautious amid macroeconomic influences and sector-specific developments.

Key Takeaways

Inflation dropped to 4.31% in January.
Repo rate currently at 6.25%.
Nifty 500 Index fell 7.88% in February.
Global markets showed mixed results.
Long-term investment outlook for India remains positive.

New Delhi, March 8 (NationPress) India’s inflation rate decreased to 4.31 per cent in January from 5.22 per cent, getting closer to the RBI’s 4 per cent target after four consecutive months above 5 per cent. This development strengthens the argument for potential interest rate reductions, given the current repo rate of 6.25 per cent, as highlighted in a recent report.

The market dynamics indicate a cautious investor sentiment, potentially shaped by macroeconomic factors, sector-specific events, and global financial market fluctuations, according to the Motilal Oswal Mutual Fund report.

During February, the Nifty 500 Index saw a decline of 7.88 per cent, indicating downturns across various sectors. Factor-based strategies mirrored the wider market trends, while fixed-income assets, such as the Nifty 5 year Benchmark G-Sec (+0.53 per cent), exhibited relative steadiness.

On a global scale, developed markets showed varied performance; Switzerland (+3.47 per cent) and the United Kingdom (+3.08 per cent) recorded gains, while Japan (-1.38 per cent) experienced a downturn, as reported.

The US CPI inflation was reported at 3 per cent, reflecting a slight rise from 2.90 per cent in the previous month.

Another report from HSBC noted that India’s long-term outlook remains robust, with the investment cycle anticipated to trend upwards in the medium term, bolstered by governmental investment in infrastructure and manufacturing, an increase in private investment, and a rebound in the real estate sector.

The HSBC Mutual Fund's ‘Market Outlook Report 2025’ predicts an increase in private investments in renewable energy and associated supply chains, localization of advanced technology components, and India's evolving role in global supply chains to foster accelerated growth.

Currently, the real economy has shown resilience against global events.

“Considering the growth-inflation metrics, the MPC’s last policy decision, and the MPC minutes, we anticipate the RBI-MPC will enact another 25 bps cut in April while remaining flexible in its liquidity approach,” the report suggested.

For a potential third rate cut, the trajectory of inflation, the monsoon outlook, and global factors will likely serve as critical considerations for the June policy meeting.