Mumbai, Sep 23: The Reserve Bank of India (RBI) is likely to reduce the repo rate by 25 basis points this year, with a total decrease of 1 percentage point expected in the upcoming easing cycle, according to a report by investment banking firm Jefferies.
The firm’s India office projects a cut to 6.25 percent, with the next RBI monetary policy review meeting scheduled for October 7-9.
This potential shift in monetary policy follows a prolonged period of stability, during which the RBI maintained the repo rate steady in nine consecutive meetings. Jefferies notes that while the formal inflation target is based on the Consumer Price Index (CPI), food prices—largely beyond the control of the central bank—significantly influence this metric.
The RBI is currently projecting a CPI inflation rate of 4.5 percent for the fiscal year 2024-25, exceeding its official target of 4 percent, which allows for a tolerance band of 2 percentage points on either side. In its last meeting in early August, the RBI opted to keep the repo rate at 6.5 percent due to ongoing concerns about inflation, which has recently moderated but remains above the target range.
The recent decision by the US Federal Reserve to lower interest rates by 50 basis points may encourage other central banks, including the RBI, to consider similar cuts. Notably, the latest US inflation data from August indicates a steady moderation towards its target, providing a potential silver lining for global economic conditions.
