New Delhi [India], February 8 : The monetary policy committee of RBI will cut repo rate by cumulatively 75 basis points in the year 2025, Bank of Baroda said in a note.
As RBI embarks upon the rate cut cycle, Bank of Baroda said it can be expected that more cuts are also on the cards, while the timing can be debatable.
"Cumulatively, we are pricing in 75bps cut in this calendar year," Sonal Badhan, an economist at Bank of Baroda said.
The repo rate is the interest rate at which the Reserve Bank of India lends to commercial banks.
"The April policy would review the economic situation and depending on the growth-inflation dynamics could opt for another cut or change in stance."
On Friday, the MPC unanimously lowered the repo rate by 25 basis points from 6.5 per cent to 6.25 per cent. Policy stance was kept at neutral to allow the MPC flexibility on future path of policy action.
This was the first rate cut in about 5 years.
RBI Governor Sanjay Malhotra in his policy statement noted the need for "less restrictive" monetary policy to support growth as inflation remains within RBI's targeted band (4-6 per cent).
The central bank expects growth to improve in 2025-26 to 6.7 per cent from 6.4 per cent in 2024-25. Inflation is projected to come down to 4.2 per cent next fiscal year from 4.8 per cent in 2024-25. These projections also take into account rupee volatility.
The RBI also stated that these projections have been made taking into account significant easing seen in vegetable prices, healthy water reservoir levels and bright prospects of Rabi sowing.
"From Q2 (2025-26) onwards, inflationary pressures are expected to ease significantly, giving room to RBI to lower rates further. We expect up to 75 bps (cumulative) reduction in rates in this calendar year. At the time of next rate cut, we also expect change in stance from neutral to accommodative," the Bank of Baroda economist said.
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