RBI MPC meeting to begin today, SBI report expects 25 bps cut on April 9 announcement

MUMBAI: The Reserve Bank of India (RBI) is set to hold its next Monetary Policy Committee (MPC) meeting from Monday, April 7, to Wednesday, April 9, in Mumbai.

The meeting will focus on reviewing the current economic conditions and deciding on the policy rates. RBI Governor Sanjay Malhotra will announce the outcome of the meeting, including any change in the key policy rates, on April 9 at 10 AM.

In its last monetary policy announcement on February 7, the MPC unanimously decided to reduce the policy repo rate by 25 basis points from 6.5 percent to 6.25 per cent. This was the first rate cut in the current easing cycle.

According to a report by the State Bank of India (SBI), a further 25-basis point rate cut is expected in the April 2025 policy.

The report anticipates a cumulative rate cut of at least 100 basis points through the cycle. It stated that RBI to take path of two successive rate cuts in February and April 2025, followed by a pause in June, with the next round of cuts likely to resume from August 2025.

However, the report also cautioned that deposit mobilization by banks may become a challenge during the rate-easing cycle. This challenge is likely to be worsened by low tax-adjusted returns for savers and a complete shift towards the Just-In-Time (JIT) mechanism.

It said, “We expect a 25-basis point rate cut in April’25 policy. The cumulative rate cut over the cycle could be at least 100 basis points.”
As a result, mobilizing low-cost and stable deposits could face a double blow in the coming months.

Economists believe that a rate cut is necessary to support economic growth. Some advocate for a 50-basis-point (bps) reduction, while others expect a more cautious approach.

Debopam Chaudhuri, Chief Economist at Piramal Group, believes that the RBI should adopt a more accommodative stance. He highlighted that the economic slowdown in the latter half of FY25 was partly due to high borrowing costs and slow credit growth. Therefore, policymakers should take measures to ease these bottlenecks.

“A 50 bps rate cut seems to be the need of the hour. Whether RBI will consider it is difficult to predict. At a time when all three major data trends, viz., softer inflation, manageable bank liquidity deficit and improving INR support a rate cut environment, the MPC may move fast,” said Chaudhuri.

However, Sonal Badhan, Economics Specialist at Bank of Baroda, expects the RBI to take a more gradual approach. She predicts a 25 bps rate cut in April, with a total reduction of 75 bps in this cycle.

Badhan noted that capital flows are influenced by multiple factors beyond interest rates, including economic growth, geopolitical risks, and global trade trends. She expects capital inflows to improve in the coming months due to India’s strong domestic economy.

She said “We expect RBI to lower repo rate by 25bps in its Apr’25 meeting. Cumulatively we have priced in 75bps rate cut in this cycle. RBI is expected to take a more gradual approach in lowering rates, hence a 25bps cut is more likely”. (ANI)