rbi-likely-to-cut-rates-in-april-august

The Reserve Bank of India (RBI) is likely to reduce interest rates again in April, with another cut expected in August, marking the shortest easing cycle on record, according to a Reuters poll of economists.

 

The decision comes amid easing inflation and sluggish economic growth, which provide room for further monetary support.

 

A strong majority of economists, 54 out of 60 surveyed between 18-27 March, expect the RBI to lower its benchmark repo rate by 25 basis points to 6.00 pc at the conclusion of its 7-9 April meeting. One respondent predicted a larger 50-basis point cut, while the remaining five anticipated no change in rates.

 

India’s inflation rate fell to a seven-month low of 3.61% in February, and economic growth is forecast at 6.4% for the current financial year, the weakest in four years. These factors allow the RBI to ease monetary policy further to support economic activity.

 

Dhiraj Nim, an economist at ANZ, highlighted the need for continued support to economic growth, citing a slowdown in consumption and investment. He noted that inflation has provided sufficient room for the RBI to recalibrate its monetary policy.

 

The central bank has injected around $64 billion worth of liquidity into the banking system over the past few months, which economists say is necessary for rate cuts to have a broader impact.

 

Despite the anticipated rate cut in April, the poll suggests the RBI will likely hold rates steady at 6.00% during its June meeting. However, a narrow majority of economists, 29 out of 49, predict another 25-basis point reduction in August, bringing the rate down to 5.75%.

 

If this easing cycle concludes after August, it will be the shortest in history since the RBI adopted the repo rate as its primary policy tool in the early 2000s. Economists caution that global factors, including U.S. Federal Reserve decisions and capital outflows, may influence the RBI’s stance beyond August.

 

Sakshi Gupta, principal economist at HDFC Bank, stated that the current rate-cut cycle is likely to be shallow. She added that her team expects a maximum of three rate cuts from the RBI, with a decision between June and August still under debate.