The Reserve Bank of India (RBI) is likely to consider another repo rate cut in its upcoming April 2025 policy meeting after the US Federal Reserve (Fed) maintained its policy rate in the 4.25%-4.50% range and indicated the possibility of two rate cuts in 2025. The RBI had already cut the repo rate by 25 basis points (bps) to 6.25% from 6.5% on February 7, 2025, initiating a rate-cut cycle aimed at boosting economic growth amid global uncertainties.

Impact of US Fed’s Decision on RBI Policy

The US Federal Reserve's decision to hold interest rates steady and its indication of two rate cuts this year has rekindled expectations of a rate cut by the RBI in April 2025. The Fed’s guidance was driven by projections of 1.7% GDP growth and 2.7% inflation in 2025, along with concerns about tariffs from the Trump administration and their impact on the economy.

US Fed Chair Jerome Powell highlighted that while inflation is gradually cooling, uncertainties remain regarding the effects of tariffs on global trade and prices. This cautious optimism has eased some pressure on emerging markets (EMs), giving central banks, including the RBI, more flexibility to consider rate adjustments.

According to Madhavi Arora, Lead Economist at Emkay Global Financial Services Ltd., “While the cautiously optimistic US Fed has eased some market pressure, we feel EM assets will be in a push and pull phase, where a generally weakening DXY would be countered by higher global uncertainty. That said, we think that changing global narratives on growth and tariff noises may allow EM central banks, including the RBI, to be less defensive on the FX fight, implying some policy flexibility on rate settings in general.”

RBI’s February Rate Cut and Economic Outlook

In February 2025, the RBI initiated a rate-cut cycle by reducing the repo rate by 25 bps to 6.25%, citing improved inflation control and the need to support economic growth. India’s GDP growth has remained stable, while inflation levels have shown signs of moderation, giving the RBI sufficient room to maneuver policy decisions.

Analysts suggest that another 25 bps cut in April could further stimulate consumer spending, investment, and credit growth. Ravi Singh, SVP – Retail Research at Religare Broking Ltd., noted, “The RBI’s policy stance has shifted toward ensuring liquidity and boosting growth. Given the current macroeconomic conditions and global factors, a rate cut in April seems plausible. Lower rates would encourage borrowing and investments, contributing positively to India’s growth trajectory.”

Market and Currency Implications for India

The US Fed’s decision has had mixed implications for Indian markets, currency movements, and capital flows. Higher US interest rates often lead to foreign capital outflows from emerging markets like India, while lower rates increase capital inflows and strengthen the Indian rupee.

According to Ravi Singh, “Overall, this decision has mixed implications for currency movements, capital flows, and market sentiment in India. Higher US interest rates could lead to foreign capital outflows from Indian markets, whereas lower rates may attract investment. Additionally, economic uncertainty in the US could contribute to market volatility. However, a stronger dollar may impact global commodity prices. As India is a major oil importer, lower oil prices could benefit the Indian stock markets.”

Ajay Garg, CEO of SMC Global Securities Ltd., emphasized that India stands to benefit from a Fed rate cut cycle, as it would lead to increased capital inflows and potential rupee appreciation. “The mix of higher inflation and lower GDP growth forecasts in the US will likely benefit emerging markets. With the expectation of a Fed rate cut in the near term, India stands to benefit as investors move their investments to high-yield economies,” he said.

Potential for RBI Rate Cuts and Economic Growth

With inflation under control and GDP growth holding steady, the RBI is expected to maintain its growth-supportive stance. Analysts suggest that the possibility of another 25 bps cut in April 2025 remains high, as global economic conditions provide sufficient headroom for further policy easing.

Ankita Pathak, Fund Manager - Global Equities & Macro Strategist at Ionic Asset by Angel One, stated, “We have entered a shallower rate cut cycle, which continues to evolve with policies under the Trump regime and inflation expectations, which are now stickier than previously expected. The policy guidance remained the same despite changing macros, which is currently being perceived positively by the investors. The Fed’s ability to cut rates will largely depend on tariffs and their repercussions on inflation.”

Impact on Borrowers and Indian Economy

A rate cut by the RBI in April 2025 would have a significant impact on personal loans, home loans, and other borrowing costs. Lower repo rates typically result in reduced lending rates, encouraging consumer spending and investment. Borrowers are likely to benefit from lower EMIs, thereby improving overall liquidity in the market.

RBI’s Next Move: Will a Rate Cut Happen in April?

Given the global and domestic economic outlook, analysts widely anticipate a repo rate cut by the RBI in April 2025. While global uncertainties persist, the US Fed’s steady stance and the potential for future rate cuts offer policy flexibility for the RBI.

Madhavi Arora pointed out that “April rate cut possibility is solid, with one further cut possible ahead. However, we are keeping a tab on fluid global dynamics and FX knock-on effects as well—both of which would be important inputs in RBI's reaction function.”

In conclusion, the RBI’s decision to ease liquidity conditions and the positive global cues provided by the US Fed have laid the groundwork for a repo rate cut in April. As India’s central bank balances domestic growth objectives with global economic headwinds, investors and markets will closely watch how the RBI shapes its monetary policy in the coming months.

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