The Reserve Bank of India (RBI) is expected to lower its key interest rates by up to 25 basis points this week, driven by easing inflation and the need to boost economic growth. The Monetary Policy Committee (MPC) is set to convene on April 7, with an official announcement expected on April 9. The decision comes as global economic challenges, particularly new tariffs from the United States, loom on the horizon.
Madan Sabnavis, Chief Economist at Bank of Baroda, emphasizes the importance of the upcoming policy announcement, citing the global economic landscape’s uncertainties due to US tariffs on around 60 countries, including India and China. Experts believe that with inflation rates under control and liquidity levels stabilized, the RBI is in a favorable position to implement a 25 basis point rate cut.
The recent tariffs imposed by the US present both challenges and opportunities for India. Competitors in key export markets, such as China, Vietnam, and Bangladesh, will face increased duties, potentially making Indian goods more competitive. Rating agency Icra has projected a 25 basis point rate cut in the upcoming MPC meeting while maintaining a neutral outlook on future policy changes.
Industry body Assocham has urged a cautious approach, advocating for a “wait-and-watch” strategy rather than an immediate rate cut. However, other experts believe that the RBI may adopt a more “accommodative” stance, indicating the possibility of additional rate cuts later this year.
Retail inflation has recently dropped to a seven-month low of 3.61% in February, primarily due to declining prices of vegetables and proteins. This decline has created an opportunity for the RBI to consider further rate reductions. The MPC’s decision will ultimately hinge on a combination of domestic economic conditions and external pressures.
A potential 25 basis point rate cut would make borrowing more affordable, particularly in the housing market, and stimulate consumption. However, the actual impact will depend on how quickly commercial banks pass on the RBI’s policy changes to consumers. The outcome of the meeting on April 9 will provide crucial insights into the RBI’s strategy moving forward, as it seeks to balance growth stimulation with inflation control.