RBI to slash benchmark repo rates by 75 bps in 2025; 25 bps reduction each in April, June, October MPCs: SBI Report

The Reserve Bank of India (RBI) will likely slash the benchmark repo rate by a total of 75 basis points (bps) in 2025, with upcoming 25 bps reductions each in April, June, and October policy meetings. According to State Bank of India (SBI) Research Ecowrap, experts believe India's consumer price index (CPI)-based inflation will be 3.9 per cent in the fourth quarter (January-March) of FY25 and average at around 4.7 per cent for the entire year.

However, looking ahead to FY26, inflation is expected to remain between 4.0 per cent and 4.2 per cent, with core inflation ranging from 4.2 per cent to 4.4 per cent. Given this trend, SBI research analysts anticipate a 75-basis-point rate cut during this cycle, with back-to-back reductions expected in April and June 2025. Another round of rate cuts could follow in October 2025.

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"With benign inflation this month and going forward, we expect a cumulative rate cut over the cycle could be at least 75 basis points, with successive rate cuts in the next policy, April and June. With an intervening gap in Aug'25, the rate cuts cycle could restart from Oct'25, said SBI Research Ecowrap.

RBI monetary policy: Key estimates for 2025

India's CPI inflation dropped to a seven-month low of 3.6 per cent in February 2025, mainly due to a sharp decline in food prices. The food and beverages inflation eased to 3.84 per cent as vegetable prices dropped significantly. Vegetable inflation turned negative for the first time in 20 months, led by major price drops in garlic, potatoes, and tomatoes.

Experts believe the MahaKumbh festival reduced garlic consumption, while fruit prices surged due to increased demand during fasting periods. Despite the inflation slowdown, imported inflation is rising, jumping from 1.3 per cent in June 2024 to 31.1 per cent in February 2025.

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Higher prices for precious metals, oils, and chemical products drive this increase. The rupee's depreciation could further impact inflation in the coming months. Meanwhile, India's industrial production (IIP) posted strong growth of 5 per cent in January 2025, up from 3.2 per cent in December 2024.

The manufacturing sector led the way with a 5.5 per cent increase, while mining grew by 4.4 per cent. However, cumulative growth from April 2024 to January 2025 stood at 4.2 per cent, lower than the six per cent recorded in the same period last year. 

"The corporate sector showed resilience in economic fluctuations. Around 4,000 listed companies reported revenue growth of 6.2 per cent in Q3 FY25, with EBITDA rising by 11 per cent and profit after tax increasing by 12 per cent compared to the previous year," said SBI Research Ecowrap.

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Sectors such as Capital Goods, Consumer Durables, FMCG, Healthcare, and Pharmaceuticals posted growth. SBI added that with lower inflation, an expected rate cut, and strong corporate performance, India's economy appears stable. However, rising imported inflation and global economic uncertainties remain key factors to watch in the coming months.