New Delhi, May 6 (KNN) India’s headline retail inflation is expected to fall below 3 percent in the April-June quarter, which will likely prompt the Reserve Bank of India (RBI) to implement cumulative policy interest rate cuts of 125 basis points in the current financial year, according to a report released by SBI Research on Monday.
“With multi-year low inflation in March and benign inflation expectations going forward, we expect rate cuts of 75 basis points in June and August and another 50 bps cut in the second half of the year i.e. cumulative cuts of 125 bps going forward,” the SBI Research report stated.
The RBI has already lowered policy interest rates by 25 basis points each in February and April, with the next bi-monthly meeting of the central bank’s Monetary Policy Committee (MPC) scheduled for June.
SBI Research has suggested a significant 50 basis points rate cut in the upcoming MPC meeting, noting that jumbo cuts of 50 bps could be more effective than secular 25 bps tranches spread over the horizon.
This recommendation comes as inflation has shown a sharp moderation, with the Consumer Price Index (CPI) based inflation dipping to a 67-month low of 3.34 percent in March. The inflation data for April is scheduled to be released next week.
The report, authored by Soumya Kanti Ghosh, SBI Group Chief Economic Adviser and Member of the 16th Finance Commission, projects that average CPI headline forecast could stay below 4 percent till December 2025 and FY26 average may be 3.7-3.8 percent, unless there is any food price related shock.
The current trajectory of CPI retail inflation remains well within the 2-6 percent band that the government has mandated the RBI to maintain.
Regarding the transmission of RBI monetary policy actions, SBI Research noted that banks have reduced their repo-linked external benchmark lending rates (EBLRs) by a similar magnitude.
Transmission to deposit rates is expected in the coming quarters, with the research team anticipating a 100 bps cut in bank deposit rates from current levels.
While credit growth is expected to moderate at 11-12 percent for FY26, deposits may fall short of double-digit growth during the fiscal year, potentially widening the gap between credit-deposit momentum and adversely affecting banks’ net interest margins (NIMs).
The research also suggests that the Indian rupee is likely to stabilise between 85 to 87 against the US dollar in 2025, adding that the domestic impact of tariffs on the dollar will be visible in 2025 which will support the rupee.
(KNN Bureau)
