India’s central bank, the Reserve Bank of India (RBI), is likely to continue its monetary easing cycle, with economists projecting an additional 75 to 100 basis points (bps) of rate cuts during the fiscal year 2025-26 (FY26). This comes after the central bank cut the key policy repo rate by 25 bps on April 9, marking its second consecutive cut.

April 2025 Policy Review: Accommodative Turn and Revised Growth Outlook

The Monetary Policy Committee (MPC), under new RBI Governor Sanjay Malhotra, lowered the repo rate from 6.25% to 6.00% in the April meeting, shifting its stance from ‘neutral’ to ‘accommodative’. Alongside, the central bank revised India’s real GDP growth forecast for FY26 to 6.5%, citing multiple global and domestic challenges.

According to Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, “We see scope for an additional 75-100 bps of rate cuts in the year ahead depending on the scale of global slowdown.”

This policy move indicates a clear prioritisation of economic growth over inflation containment, especially as inflation remains within a manageable range.

Rate Cut Timeline and Historical Context

The April rate cut follows the February 2025 policy, when the RBI reduced the repo rate for the first time in five years, also by 25 bps. The February decision marked a major policy shift under the new leadership, with the focus clearly tilted toward stimulating demand and investments.

This recent easing marks a break from the prolonged pause and tightening bias seen in the previous five years under former Governor Shaktikanta Das.

Growth Forecasts for FY26: More Conservative but Balanced

The RBI’s updated quarterly growth projections for FY26 are as follows:

• Q1 FY26: 6.5%

• Q2 FY26: 6.7%

• Q3 FY26: 6.6%

• Q4 FY26: 6.3%

In contrast, the earlier projections, made before trade war risks resurfaced, were slightly more optimistic:

• Q1 FY26: 6.7%

• Q2 FY26: 7.0%

• Q3 FY26: 6.5%

• Q4 FY26: 6.5%

This moderation reflects the RBI’s acknowledgement of evolving global headwinds, including a slowdown in international trade and rising geopolitical tensions.

The Silver Lining: Domestic Economy Remains Resilient

Despite rising external risks, the RBI’s Monetary Policy Report continues to paint a positive picture of India’s domestic economy. It highlights:

• Revival in private consumption

• Government’s capital expenditure push

• Uptick in agricultural activity

• Robust services sector growth

The services sector is supported by high-capacity utilisation and strong balance sheets of banks and corporates. However, the manufacturing sector’s growth has remained moderate, partly due to seasonal factors.

External Risks Pose a Challenge

The policy report also issues caution on multiple external vulnerabilities that could derail the growth trajectory:

• Rising protectionist trade measures globally

• Geopolitical tensions, particularly in West Asia and Eastern Europe

• Supply chain disruptions

• Volatile global financial markets

These risks could impact exports and investment sentiment, making it imperative for the central bank to strike a delicate balance between supporting growth and managing inflation expectations.

Inflation Remains Benign, Providing Policy Space

RBI’s current accommodative stance has been made possible largely due to benign inflation trends. While food inflation has shown periodic spikes, the overall consumer price index (CPI) inflation remains within the RBI’s 4% target band, enabling the central bank to maintain a pro-growth posture.

This flexibility has given policymakers the confidence to support aggregate demand through interest rate cuts without fueling inflationary pressures.

Forecasts and Analyst Views: Room for More Cuts

Forecasters in March 2025 had predicted 7% GDP growth for Q4 FY25, and many had revised their FY26 projections downward to 6.5%-6.7%, aligning closely with the RBI’s latest estimates.

Harsh Dugar, Executive Director at Federal Bank, noted, “The policy recognises macroeconomic risks and shows intent to support growth, even with revised lower estimates, given the contained inflation environment.”

Market watchers believe that the RBI could continue to cut rates incrementally, especially if global growth weakens further or if exports falter amid new trade barriers.

Impact of Global Developments: Trade Wars and Monetary Tightening Elsewhere

The global context is marked by mounting trade wars, with countries including the US imposing new tariffs on imports, including Indian goods. Additionally, monetary tightening in advanced economies could lead to capital outflows, posing risks to emerging markets like India.

Despite this, India’s foreign exchange reserves remain strong, and fiscal discipline has improved, allowing the RBI some wiggle room for further easing without destabilising markets.

Key Takeaways from RBI’s Monetary Strategy

• The accommodative policy stance is a clear indication that growth is now the primary objective for the RBI.

• The focus will remain on carefully monitoring inflation trends, especially in volatile segments like food and fuel.

• Further rate cuts are likely but will depend on external macroeconomic developments, particularly around global trade and oil prices.

Conclusion: RBI’s Path Forward Will Be Measured Yet Supportive

With inflation under control and external risks looming large, the RBI is expected to adopt a measured easing strategy over the coming quarters. The 75-100 bps rate cut forecast is a reflection of policy flexibility and a commitment to sustaining economic momentum in uncertain times.

The next few months will be crucial, especially in determining whether global uncertainties translate into real sector disruptions in India. In the meantime, borrowers can expect easier financial conditions, while investors and businesses may gain from improved credit availability.

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