S&P Global Ratings Forecasts 75 Basis Points Repo Rate Cut in India in 2024-25

S&P Global Ratings anticipates a repo rate reduction of up to 75 basis points by the Reserve Bank of India (RBI) during the fiscal year 2024-25. This move aligns with projected adjustments in US policy rates, with the majority of the cuts expected in the latter half of the financial year. The agency also foresees similar rate adjustments in Indonesia, New Zealand, and the Philippines. Factors such as declining inflation, a reduced fiscal deficit, and lower US policy rates set the stage for the RBI to initiate rate cuts, possibly around June 2024 or later.

S&P Forecasts 75 Basis Points Repo Rate Cut in India: Key Points

Current Policy Stance: In its February review meeting, the RBI’s Monetary Policy Committee unanimously opted to maintain the policy repo rate at 6.5 percent, marking the sixth consecutive instance of status quo. RBI Governor Shaktikanta Das attributed this decision to comfortable inflation levels and robust growth dynamics.

Inflation Dynamics: Although retail inflation in India resides within the RBI’s comfort zone of 2-6 percent, it remains slightly above the ideal 4 percent scenario, standing at 5.09 percent in February. S&P projects a further decline in consumer inflation to 4.5 percent on average for fiscal 2025.

RBI’s Projections: The RBI’s inflation projections for 2023-24 remain at 5.4 percent, with quarter-wise estimates indicating 5.6 percent for Q3 and 5.2 percent for Q4. For Q1 of 2024-25, CPI inflation is anticipated at 5.2 percent, followed by 4.0 percent in Q2 and 4.7 percent in Q3, with risks evenly balanced.

Policy Outlook: The RBI typically holds six bimonthly meetings within a financial year to deliberate on interest rates, money supply, inflation outlook, and other macroeconomic indicators.