RBI to cut rates again on April 9, then just once more in August: Reuters poll

With inflation in India easing to a seven-month low of 3.61% in February and the economy forecast to grow at 6.4% this fiscal year, the weakest in four years, the central bank has room to cut rates further.

A strong majority of economists, 54 of 60 in the March 18-27 Reuters poll, expected the RBI to cut its benchmark repo rate by 25 basis points to 6.00% at the conclusion of its April 7-9 meeting.

One respondent predicted a 50 basis point cut, while the remaining five expected no change.

“There are not many strong growth drivers going into fiscal year 2026…they (RBI) need to sustain their support to growth. Inflation has also created a lot of room for them to ease. So I think they should utilise that space and sort of recalibrate monetary policy,” said Dhiraj Nim, economist at ANZ.

“They have injected liquidity, so that’s covering some part of the liquidity deficit, that’s good. But I think the rates also need to fall now because we have seen a palpable slowdown in consumption and investment and the real rates need to adjust from that perspective.” The RBI has injected about $64 billion of rupees into the banking system over the last few months to increase money supply, which economists said was needed for rate cuts to work their way into the broader economy. However, several economists in the poll said it would take a few more months for that to happen.

“If transmission needs to happen, especially in a rate-cutting cycle, (banking sector) liquidity needs to be on the positive side,” said Indranil Pan, chief economist at Yes Bank.

Pan added liquidity will start to improve in the upcoming financial year, beginning in April 2025, as government expenditures also pick up pace.

SHALLOWEST RATE-CUT CYCLE EVER

Median forecasts in the poll showed the RBI will keep interest rates at 6.00% in the June 4-6 meeting. However, a narrow majority of economists, 29 of 49, expected the interest rate to fall to 5.75% in the August meeting, a view unchanged from last month.

This is expected to be followed by a prolonged pause until at least the first half of next year. With a total of 75 basis points in rate cuts this cycle, it will be the shortest easing cycle since early 2000, when the RBI began using the repo rate as its main policy tool.

“I think this is going to be a shallow rate cut cycle to begin with…Depending on what happens on the global front, drags of capital outflows and what the U.S. Fed does,” said Sakshi Gupta, principal economist at HDFC bank.

“We were always of the view that there will be a maximum of three rate cuts that the RBI will deliver…Beyond the cut in April, we remain divided between June and August.”