The Reserve Bank of India (RBI) is expected to lower the benchmark repo rate by a total of 75 basis points (bps) in 2025, with reductions of 25 bps each in the April, June, and October policy meetings.
This projection, outlined in the latest SBI Research Ecowrap report, is based on a favourable inflation outlook and a stable economic environment.
According to the report, India’s consumer price index (CPI)-based inflation is estimated to be around 3.9 pc in the fourth quarter (January-March) of FY25, with an annual average of approximately 4.7 pc.
Looking ahead to FY26, inflation is expected to stay within the 4.0 pc-4.2 pc range, with core inflation hovering between 4.2 pc and 4.4 pc. Given these trends, SBI analysts anticipate a series of rate cuts, starting with back-to-back reductions in April and June, followed by another possible cut in October.
Inflation Trends and Economic Factors
Inflationary pressures have eased in recent months, with India’s CPI inflation falling to a seven-month low of 3.6 pc in February 2025. This decline has been primarily driven by a sharp drop in food prices, especially in the vegetable segment, where inflation turned negative for the first time in nearly two years.
A significant price decline in garlic, potatoes, and tomatoes contributed to this trend, partially influenced by lower garlic consumption during the MahaKumbh festival.
However, while domestic inflation is under control, imported inflation is on the rise, increasing from 1.3 pc in June 2024 to 31.1 pc in February 2025. Higher global prices for precious metals, oils, and chemical products have contributed to this surge.
The depreciation of the Indian rupee could further impact inflation in the coming months, making external economic factors a key consideration for RBI’s monetary policy decisions.
Industrial Growth and Corporate Performance
Despite global economic uncertainties, India’s industrial sector has shown resilience. The Index of Industrial Production (IIP) recorded a 5 pc growth in January 2025, up from 3.2 pc in December 2024.
The manufacturing sector led the way with a 5.5 pc increase, while mining posted a 4.4 pc growth. However, cumulative industrial growth from April 2024 to January 2025 stood at 4.2 pc, lower than the 6 pc recorded during the same period last year.
The corporate sector has also demonstrated stability, with around 4,000 listed companies reporting revenue growth of 6.2 pc in Q3 FY25. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) rose by 11 pc, while profit after tax increased by 12 pc compared to the previous year.
Key sectors such as capital goods, consumer durables, fast-moving consumer goods (FMCG), healthcare, and pharmaceuticals have contributed to this strong performance.
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