According to a recent report by Crisil, the Reserve Bank of India (RBI) has the space to implement further rate cuts by 50-75 basis points (bps) by March 2026. This is due to the expected easing of inflation, which is projected to soften to 4.4% in fiscal 2026 from 4.7% in fiscal 2025. The report points out that continuing fiscal consolidation has paved the way for monetary easing.
However, the report also highlights several factors that could impact the rate-cutting cycle, including US tariff hikes, moderating US Federal Reserve (Fed) rate cuts, and geopolitical and weather-related risks. The RBI’s Monetary Policy Committee (MPC) recently cut the policy rate by 25 bps in February, its first rate cut since May 2020. Despite this, the MPC maintained a neutral stance, giving it flexibility to remain data-dependent and respond to global shocks.
The report notes that food inflation is expected to ease further, supported by healthy crop yields, a normal monsoon, and soft global food prices. Additionally, a high base for food inflation this fiscal year will provide some relief, and expectations of benign global commodity prices will help keep non-food inflation in check. Overall, the report suggests that the RBI has the room to implement further rate cuts, but will need to remain vigilant and responsive to changes in the global economy.