Through 2024, the Reserve Bank of India’s monetary policy committee had left the repo rate unchanged, worried over high inflation while growth had been strong. With inflation now cooling and growth concerns emerging, more so since US President Donald Trump unleashed a wave of reciprocal tariffs, the MPC has now cut the repo rate twice this year. With the MPC also changing its stance to accommodative and cutting its inflation and GDP growth forecast, economists see a clear signal that there will be further rate cuts in 2025.

Following up on the 25 basis points (0.25 per cent) cut in February, the RBI MPC on Wednesday reduced the policy repo rate again by 25bps to 6 per cent. RBI Governor Sanjay Malhotra stated the recent trade tariff- measures have exacerbated uncertainties clouding the economic outlook across regions. On the other hand, on the inflation front, he said the sharper-than-expected decline in food inflation had given them confidence and comfort.

“We note the increasing global turmoil and its spillovers to the Indian growth slowdown will necessitate the MPC for deeper rate cuts. We see scope for additional 75-100bps of rate cuts in the year ahead depending on the scale of global slowdown,” noted Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

Indranil Pan, chief economist at Yes Bank pointed out that the risks to food inflation have likely reduced given Skymet’s projection of a normal monsoon, while at the same time, global growth risks have unleashed a sharp softening in crude oil and other commodity prices, which is also a positive for India’s inflation dynamics.

“Overall, the confidence that inflation would remain aligned to the 4 per cent target has magnified… the scope of pushing repo rate down to 5.50 per cent in this cycle has opened,” noted Pan, who expects the RBI MPC to cut the repo rate in the next meeting in June as well as August.

Economists feel that there are downside risks to the GDP growth expectations in the current financial year, depending on how the reciprocal tariffs pan out and their impact on India. With inflation not being much of a concern now, slower-than-expected growth could open up room for additional rate cuts than what was earlier expected.

Rajani Sinha, chief economist at CareEdge Ratings estimates the direct impact of reciprocal tariff at around 0.2-0.3 per cent of GDP and to add to that there will be indirect impact amid heightened global uncertainties.

“In the midst of global uncertainties and growth concerns, we expect a further 50bps rate cut in FY26. We do not rule out the possibility of the rate cut cycle being even deeper if the global trade war severely dents growth prospects,” said Sinha.

Rajeev Radhakrishnan, CIO (fixed income) at SBI Mutual Fund also sees more repo rate cuts ahead.

“Effectively the key message is the unambiguous focus on domestic growth and the confidence that forward-looking inflation is likely to be aligned closer to the policy target of 4 per cent,” he said.

Pranjul Bhandari, chief economist (India and Indonesia) at HSBC, said the RBI has clearly signalled that it is focused on supporting growth. By changing the stance as well as cutting the growth and inflation forecasts, it gave a “double assurance” that more rate cuts are coming, she said.

“With growth falling below potential, and inflation below target in FY26, we expect further easing. We are calling for a 25bps rate cut in the June and August meetings, taking the policy rate to 5.5 per cent, which is our estimate of neutral. If growth expectations continue to remain weak, policy rate may even dip below neutral, though that’s not our central forecast,” according to Bhandari.