MUMBAI: Most analysts have ruled out further repo rate cuts in 2025 given the hawkish inflation stance that the central bank has taken in the current review wherein it has unanimously voted to leave all the key rates unchanged at 5.5%.
Soumyakanti Ghosh, the chief economic advisor to the State Bank, in a note Wednesday said even though the MPC has pared its CPI inflation forecast for FY26 by a significant 60 bps to 3.1%, it sees inflation shooting up again and crossing the 4-percent mark in the March quarter and further rising in Q1 of the next fiscal.
“That the MPC unanimously decided to maintain the repo rate at 5.5% reflects a cautious stance amid ongoing global uncertainties, including the impact of trade tensions and tariff wars. With most rate cuts already frontloaded, the Reserve Bank has chosen to pause and assess incoming data before making further moves. The committee also reaffirmed its neutral policy stance, signaling a balanced approach to managing inflation and supporting growth,” Ghosh said.
Describing the current pause as a “technical one”, not ruling out the possibility of a future rate cut, he said it underlines that the bar for such a move in 2025 has now risen significantly.
The inflation relief is temporary as it is expected to rise sharply to 4.9% in Q1 FY27. This trajectory keeps inflation in the “uncertain band,” making the RBI wary of acting too soon and risking a reversal later, he said, adding with a large portion of rate easing has already been front-loaded, and leaves limited room for further accommodation, unless there’s a major shift in inflation or growth trends, the central bank has little incentive to act quickly.
In a note, Aditi Nayar, the chief economist at Icra Ratings, said the status quo policy was a surprise to her as she was expecting a 25 bps cut.
“The strong emphasis on the CPI inflation estimates of over 4% from Q4FY26 onwards limits the space for rate cuts in the upcoming policy meetings, thereby signalling the beginning of an extended pause. We currently expect the policy rates to remain unchanged in the October policy review, unless there are large surprises on the growth front, which lead to a material cut in growth projections,” Nayar said.