Stock markets continued their freefall on Monday amid growing fear of a trade war and global recession — prompting calls for the Reserve Bank of India to cut rates by 50 bps. The central bank is widely expected to cut rates by 25 basis points as it announces its policy decision on Wednesday.
“RBI should consider front-loading rate cuts, and a 50-basis-point cut in April can be a good pre-emptive move. Domestic inflation is low, globally, yields are coming down, and USDINR has regained some of its lost ground. These trends present a good opportunity for aggressive rate cuts,” Debopam Chaudhuri — the Chief Economist at Piramal Group — told ANI.
He opined that the central bank could afford to act ‘boldly’ during its ongoing meeting since inflation was currently under control and the rupee had begun to improve its standing. Some economists however noted that the RBI was likely to remain a tad cautious till the monsoon situation became ‘more clear’.
“We are going with a 25 basis points rate cut, as RBI will remain cautious until the situation of monsoon is more clear. However, the stance will be changed to accommodative, implying that after this, there is scope for more than one 25 basis points rate cut, depending upon the prevailing macro-economic situation,” explained Sonal Badhan — the Economics Specialist at Bank of Baroda.
The Reserve Bank of India is set to begin its bi-monthly Monetary Policy Committee meeting on Monday to review current economic conditions and deciding on the policy rates. The central bank had opted to reduce the policy repo rate by 25 basis points (from 6.5% to 6.25%) during its previous meeting in February — the first rate cut in the current easing cycle. According to a recent SBI report, an additional 25-basis point rate cut is expected in the April 2025 policy. The RBI has infused over Rs 5.2 trillion into the banking system since the start of 2024, through debt purchases and foreign exchange swaps. It is scheduled to buy bonds worth an additional Rs 600 billion in April.
The analysis also anticipated a cumulative rate cut of at least 100 basis points through the cycle. It stated that RBI to take path of two successive rate cuts in February and April 2025, followed by a pause in June, with the next round of cuts likely to resume from August 2025. The SBI report however warned that deposit mobilization by banks could become a challenge during the rate-easing cycle — worsened by low tax-adjusted returns for savers and a complete shift towards the Just-In-Time mechanism.
US President Donald Trump had sparked upheaval last week after announcing sweeping ‘reciprocal tariffs’ against nearly all imports from more than 180 countries. Customs officials have already begun collecting the 10% initial ‘baseline’ tariffs against most countries with higher levies on goods from 57 larger trading partners are due to start this week.
(With inputs from agencies)