Last year i.e. in 2025, to provide relief in EMI of common people, the policy was reduced 4 times and a relief of 1.25 percent was given. This time too, relief can be given to common people. This year's relief will not be as big as 2025. According to a report by IIFL Capital, the Reserve Bank of India has scope to cut the policy rate by another 50 basis points in 2026, after a massive cut of 125 basis points in 2025.
The report highlights that the gap between the repo rate and core CPI inflation is still high, leaving scope for additional monetary easing. The gap between the repo rate and core CPI is currently 2.8 percentage points, while it has averaged 1.1 percentage points over the last seven years, indicating the possibility of more rate cuts in India.
The report said that due to the difference between the repo rate and core inflation being much above its historical average and inflation being low, there is still scope for a reduction of 50 basis points. The report also said that monetary easing, along with continued liberalization, will accelerate growth and banks are expected to perform better as loan conditions improve. The Reserve Bank of India announced a reduction in the policy repo rate by 25 basis points in December, bringing it down to 5.25 percent. In the year 2025, RBI announced a total reduction of 125 basis points.
India's GDP growth is expected to accelerate in 2026, due to the cumulative effect of economic reforms and interest rate cuts made by the RBI so far. The report said that there is scope for further easing, as the repo rate minus core inflation remains well above its historical average. Although global monetary favorable conditions are expected to remain limited, domestic factors will play an important role in boosting growth.
According to the report, free trade agreements, especially with the European Union, and a potential rise in the Indian rupee are expected to contribute positively to export-oriented FDI. A revival in capex is expected in the second half of FY 2027, which will provide further impetus to economic activity.
The report on the stock market outlook said that the valuation multiple of about 20.4 times is broadly in line with the levels seen a year ago. However, the potential for income growth is now higher, and Nifty is expected to deliver returns of around 15 per cent from current levels. The performance of small-cap stocks is also expected to improve, although it may take some time. The report further said that 2026 is likely to be another year in which there will be reforms, relaxation in regulation and ease of doing business, which will boost GDP. Inflation risk is considered to be minimal as crude oil prices, which are linked to India's CPI inflation, are expected to hover around US$65 and may fall further as Venezuela's crude oil infrastructure improves.
