RBI Likely to Cut Interest Rates Next Month Amid Easing Inflation: HSBC Report
The Reserve Bank of India (RBI) is expected to announce another interest rate cut in April, following the recent decline in retail inflation, which dropped to 3.6% in February.
New Delhi: The Reserve Bank of India (RBI) is expected to announce another interest rate cut in April, following the recent decline in retail inflation, which dropped to 3.6% in February. According to a report by HSBC Research, the March inflation figures are also trending below the RBI’s 4% target, strengthening expectations of a further rate reduction next month.
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RBI to Cut Repo Rate by 25 Basis Points in April: HSBC Forecast
HSBC Research predicts that the RBI, having already embarked on a rate-cutting cycle, will reduce the repo rate by 25 basis points in the upcoming monetary policy committee (MPC) meeting in April. This would bring the repo rate down to 6%, further supporting economic growth in light of easing inflation.
“The RBI is likely to continue its rate-cutting trajectory, with March quarter inflation trending lower than the central bank’s initial forecast for the period,” the report states. It notes that favorable winter crop sowing, combined with favorable temperatures in the coming weeks, will be crucial as the wheat crop enters its grain-filling stage.
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Key Inflation Trends: Food Prices Decline, Core Inflation Remains in Check
Deflation in food prices persisted in February, with a 1.0% month-on-month decrease. This decline was driven by a drop in the prices of vegetables, pulses, and egg, fish, and meat. However, the report highlights that the prices of cereals, sugar, and fruits have risen.
In terms of core inflation, which excludes food and fuel, there was a sharp increase in gold prices during February. Despite this, the overall core inflation, excluding gold, remained below the 4% threshold in annual terms, and within its long-term average in sequential terms.
Rupee Depreciation Could Impact Inflation, But Oil Prices Remain Benign
HSBC also pointed out that the Indian rupee has depreciated by 4% against the US dollar since October, which could add 30 basis points to inflation, given the foreign exchange sensitivities. However, the report suggests that a stable outlook on oil prices (with HSBC’s commodity forecast for Brent crude at USD 73 per barrel in 2025) and China’s excess capacity will likely help contain core inflation.
India’s GDP Growth Forecast at 6.5% for FY26
HSBC has projected India’s GDP growth to be 6.5% in FY26, driven by a surge in rural demand after the harvest, growth support from tax cuts for the middle class, and the easing of monetary policy. These factors are expected to boost growth in the April-June quarter. However, the report also cautions that weaker goods exports, particularly following the global restocking cycle ahead of US tariff threats, could limit the upside.
Inflation to Average 4% in FY26
Considering the current economic trends, HSBC anticipates that headline inflation will average 4% in FY26, with a further moderation in the coming months, aligning with the RBI’s target.
RBI’s Rate Cuts to Support Growth Amid Global Uncertainties
RBI Governor Sanjay Malhotra had previously announced a 25-basis point cut in the policy rate, from 6.5% to 6.25%, in the February monetary policy review. This decision aimed to support growth amid global uncertainties. Malhotra reiterated that inflation has been declining and is expected to gradually align with the RBI’s target of 4% in the near future.
