More rate cuts on the cards as retail inflation drops to over 5-year low in March

India’s retail inflation, measured by the Consumer Price Index (CPI), cooled to 3.34% in March 2025, marking its lowest level in over five-and-a-half years, better than market forecasts of 3.5%, setting the stage for the country’s central bank to cut interest rates again in the June and August policy meetings. With the latest print, the annual CPI for FY25 stood at 4.63% as against the average CPI of 5.36% in FY24 and 6.66% in FY23.

The downward trend in CPI inflation for consecutive months since October 2024’s high of 6.21%, driven by core inflation, suggests inflationary pressures are stablising, paving the way for more rate cuts this year. Core inflation, excluding food and fuel, edged up from a low of 3.28% in August 2024 to 3.77% in October and remained steady around 3.6-3.7% during the November-January period. In February and March 2025, core inflation spiked to 4.1%—the highest print in 15 months—driven primarily by a sharp increase in gold prices, a safe-heaven asset amidst the global equity market rout.

Economists expect 50 bps cut in repo rate by Aug

Economists are expecting the Reserve Bank of India (RBI) to cut interest rates by another 50 basis points in the next two monetary policy committee (MPC) meetings, bringing down the key repo rate to 5.5% from the current level of 6% by August 2025. The repo rate is the interest rate at which RBI lends money to commercial banks. 

“With multi-year low inflation this month and benign inflation expectations going forward, we expect rate cuts of 50 basis points in June and August,” SBI Research said in its Ecowrap report.

Economists at SBI Research believe that the cumulative rate cuts could now be more than 100 basis points with an increasingly uncertain growth environment. The agency expects average CPI inflation for FY26 in the range of 3.9%, while it pegs GDP growth in FY26 at 6.3% with a downward bias.

In a similar trend, HSBC, in its global research report, said an "accommodative" RBI has embarked on a rate cutting and liquidity infusing cycle. “We expect a 25-bp rate cut each in the June and August policy meetings, taking the repo rate to 5.5%.”

Adding to it, HSBC expects easy liquidity conditions to persist and help in the transmission of rate cuts.

Echoing this, Union Bank of India in its report highlighted that as March CPI and Q4FY25 CPI remained below 4% (3.7%), it maintained its call of another 50-bp repo rate cut in the June and August meetings to bring the repo rate down to 5.5%, with a close watch on global risks.

In the recent policy meeting on April 9, the RBI’s MPC, led by newly appointed Governor Sanjay Malhotra, announced a repo rate cut by another 25 basis points to 6% to address liquidity shortages and support economic growth amid uncertainties about the global trade scenario. This marked the second consecutive rate cut this year, following a similar reduction in February, with the RBI shifting its stance to “accommodative” to ensure economic stability in a challenging time as risks remain high due to U.S. President Donald Trump’s tariff polices. Additionally, the RBI has reduced its GDP growth projection to 6.5% due to external challenges like the U.S. tariffs.

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