Economists are shortening the odds of an interest rate cut by the Reserve Bank of India (RBI) in April as retail inflation falls below its legal mandate, with rising farm output raising expectations that food prices will stay benign for the foreseeable future.
An ET poll of 12 institutions shows that most respondents are factoring in a 25-basis point rate cut on April 9, with nearly half of them pencilling in an additional 25 bps reduction in the June policy review. The Monetary Policy Committee delivered a cut in February for the first time in five years, taking the repo rate to 6.25% from 6.50% earlier, while maintaining a neutral stance.
A basis point is 0.01 percentage point.
India’s retail inflation, as measured by the Consumer Price Index (CPI), slumped to 3.61% in February from 4.26% in January, showed data published by the National Statistics Office (NSO) on Wednesday.
CPI slipped below 4% target for the first time in seven months.
Such a steep fall in the CPI inflation offers policymakers sufficient room to deliver a second consecutive policy repo rate cut in April, economists said. Those unsure of further rate action in June cited the global uncertainties, such as tariffs and wild currency movements.
“Against the consensus view of approximately 50 basis point of additional easing, we continue to expect 75 basis point of further cutsto a terminal rate of 5.50% by end-2025, with 25 basis point cut each in April, June and August,” Sonal Varma, chief economist, India and Asia, Nomura, said in a report.
Currency markets and the overnight index swaps (OIS) segments have started pricing in rate cuts, as the rupee appreciated 20 paise to close at 87.01/$1 on Thursday, from a previous close of 87.21/$1.
The two-year OIS was trading at 5.92%, while the one-year OIS was trading at 6.12% as of Thursday, Clearing Corp of India (CCIL) data showed. OIS is an interest derivative contract where one party pays fixed interest rate and the other floating rate. The OIS market typically prices in a spread of around 25 basis points over where traders expect the repo rate to be at a certain time.
Economists are also taking comfort in the central bank’s active intervention in the market to ease the liquidity pressure, which many in the market are taking as a signal of the RBI’s intention to reduce borrowing costs.
The RBI has also injected durable liquidity of ₹1.5 lakh crore into the banking system via open market operations (OMO) purchases and a total of $20 billion in dollar-rupee buy-sell swap.
An ET poll of 12 institutions shows that most respondents are factoring in a 25-basis point rate cut on April 9, with nearly half of them pencilling in an additional 25 bps reduction in the June policy review. The Monetary Policy Committee delivered a cut in February for the first time in five years, taking the repo rate to 6.25% from 6.50% earlier, while maintaining a neutral stance.
A basis point is 0.01 percentage point.
India’s retail inflation, as measured by the Consumer Price Index (CPI), slumped to 3.61% in February from 4.26% in January, showed data published by the National Statistics Office (NSO) on Wednesday.
CPI slipped below 4% target for the first time in seven months.
Such a steep fall in the CPI inflation offers policymakers sufficient room to deliver a second consecutive policy repo rate cut in April, economists said. Those unsure of further rate action in June cited the global uncertainties, such as tariffs and wild currency movements.
“Against the consensus view of approximately 50 basis point of additional easing, we continue to expect 75 basis point of further cutsto a terminal rate of 5.50% by end-2025, with 25 basis point cut each in April, June and August,” Sonal Varma, chief economist, India and Asia, Nomura, said in a report.
Currency markets and the overnight index swaps (OIS) segments have started pricing in rate cuts, as the rupee appreciated 20 paise to close at 87.01/$1 on Thursday, from a previous close of 87.21/$1.
The two-year OIS was trading at 5.92%, while the one-year OIS was trading at 6.12% as of Thursday, Clearing Corp of India (CCIL) data showed. OIS is an interest derivative contract where one party pays fixed interest rate and the other floating rate. The OIS market typically prices in a spread of around 25 basis points over where traders expect the repo rate to be at a certain time.
Economists are also taking comfort in the central bank’s active intervention in the market to ease the liquidity pressure, which many in the market are taking as a signal of the RBI’s intention to reduce borrowing costs.
The RBI has also injected durable liquidity of ₹1.5 lakh crore into the banking system via open market operations (OMO) purchases and a total of $20 billion in dollar-rupee buy-sell swap.
