RBI likely to continue rate cuts in April, says BofA; sees repo rate at 5.5% by year-end

The Reserve Bank of India (RBI) appears on track for another round of monetary easing in its April Monetary Policy Committee (MPC) meeting, according to Bank of America (BofA) Global Research. The firm expects the central bank to cut the repo rate by 25 basis points (bp), bringing it down to 6 percent. BofA said the path for further easing seems clear, with headline inflation likely to remain below 4 percent over the next few months and exchange rate pressures easing substantially.

BofA highlighted that the alignment of economic data—including stable but non-inflationary growth and subdued price pressures—should provide the RBI with enough room to continue its rate-cutting cycle. The firm, however, cautioned that the potential implementation of reciprocal tariffs on April 2 could present some uncertainty. While this may marginally impact growth and inflation, BofA believes it is unlikely to significantly influence the April MPC decision.

Slower Growth and Easing Inflation Support Rate Cuts

BofA noted that macroeconomic projections further validate the case for rate reductions. The RBI currently forecasts FY26 GDP growth at 6.7 percent, which it considers slightly optimistic compared to its own estimate of 6.5 percent and the Ministry of Finance’s range of 6.3–6.8 percent. The firm does not anticipate major revisions to the growth forecast but believes the RBI might make slight downward adjustments, given recent upward revisions in the GDP base.

On the inflation front, BofA projected that the RBI is likely to undershoot its Q4 FY25 inflation target of 4.4 percent by 40–60 bp, based on its own tracking estimates. For FY26, the RBI’s inflation projection of 4.2 percent may also prove conservative, given the ongoing decline in oil prices, a stabilizing rupee, and weak aggregate demand. While heatwaves during the summer pose some inflationary risk, the brokerage expects robust food production to limit any upside. Consequently, the firm anticipates the RBI could lower its near-term inflation projections, keeping the FY26 Consumer Price Index (CPI) forecast around 4 percent.

Rate-Cutting Cycle to Continue, With Liquidity Support

The broekrage expects the RBI to remain committed to its rate-cutting trajectory. The February MPC meeting marked the beginning of the easing cycle, and the firm believes this will continue in April. BofA anticipates that the central bank will offer forward guidance, indicating that its monetary policy will prioritize reviving growth momentum while keeping inflation within the 2–6 percent tolerance range.

BofA continues to expect a cumulative 100 bp of rate cuts in this cycle, including the 25 bp delivered in February. This would bring the repo rate to 5.5 percent by the end of 2025, a level the firm considers close to the neutral rate. Additionally, the central bank is expected to keep liquidity taps open. BofA noted that the RBI has already injected approximately ₹5 trillion of durable liquidity into the banking system since December through variable rate repo operations, bond purchases, and forward swaps. The firm expects further liquidity measures in the coming months to enhance credit availability.

RBI Likely to Revise Down Growth and Inflation Projections in April

The RBI could revise its growth and inflation projections downward in the upcoming April Monetary Policy Committee (MPC) meeting, according to the brokerage. Despite the upgraded historical growth trajectory, BofA noted that recent GDP data does not indicate a sharp recovery. The firm expects the RBI to moderately reduce its growth estimates for FY26 while also trimming near-term inflation forecasts, given the sharper-than-expected decline in food prices.

Growth Recovery Expected to Remain Gradual

BofA highlighted that during the February policy meeting, the RBI projected FY26 GDP growth at 6.7 percent, 30 basis points (bp) above its FY25 estimate of 6.4 percent. However, the firm believes that incoming data does not support an aggressive recovery. Despite the upward revision in historical GDP figures, BofA noted that the latest data for January and February suggests a moderate but consistent recovery.

The firm’s own projections indicate that growth is likely to recover from approximately 6.3 percent in FY25 to 6.5 percent in FY26. BofA cited various growth trackers and high-frequency indicators, which show that the recovery, which began gradually in November, has continued steadily. The firm believes risks to its GDP projections remain evenly balanced, suggesting limited downside.

Near-Term Inflation Projections May Be Revised Lower

BofA expects the RBI to release its long-term inflation forecasts in April, coinciding with the publication of the monetary policy report. The firm anticipates that the central bank may lower its near-term inflation projections, given the steeper-than-expected decline in food prices. However, BofA cautioned that the RBI may incorporate some cushion into its estimates due to rising summer temperatures, which could create inflationary pressures.

Despite the current moderation in food inflation, BofA does not expect the RBI to project headline inflation significantly below 4 percent over the forecast horizon. The firm continues to forecast Consumer Price Index (CPI) inflation at 4.1 percent for FY26, slightly below the RBI’s projection of 4.2 percent.

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