RBI May Further Cut Interest Rates By 50 Basis Points In 2025, Shift To “Accommodative” Stance: Bank Of Baroda Report

The Reserve Bank of India (RBI) could reduce interest rates by a further 50 basis points (bps) in 2025 and transition from a “neutral” to an “accommodative” monetary policy stance, according to a recent report by the Bank of Baroda.

The report suggests that the central bank has already embarked on a rate-cut cycle, with more reductions expected in the coming months, though the precise timing remains uncertain, ANI reported.

“As RBI embarks upon the rate cut cycle, it can be expected that more cuts are also on the cards, while the timing can be debatable. Cumulatively, we are pricing in 75bps cut in this calendar year,” the report stated.

The RBI recently reduced the repo rate by 25 bps to 6.25 per cent, marking its first rate cut in five years.

The unanimous decision by the Monetary Policy Committee (MPC) also brought down the Standing Deposit Facility (SDF) rate to 6 per cent and the Marginal Standing Facility (MSF) rate to 6.5 per cent. Despite the cut, the policy stance remained “neutral,” reflecting a cautious approach.

The Bank of Baroda report projects a total rate cut of 75 bps in 2025, with the next policy review in April being crucial in assessing economic conditions. The possibility of another rate reduction or a shift in policy stance will depend on inflation and growth trends.

Inflation is forecasted to remain at 4.4 per cent in the final quarter of FY25 and 4.5 per cent in the first quarter of FY26. However, from the second quarter of FY26 onwards, inflationary pressures are expected to ease, creating more room for further rate cuts.

The report also acknowledges rupee volatility as a factor in inflation projections, but with inflation likely to decline from mid-2025, the RBI is expected to continue its monetary easing.

If the central bank implements another rate cut, its stance is likely to shift to “accommodative,” signalling a stronger focus on stimulating economic growth.

This shift would mark a significant policy transition, reflecting the RBI’s intent to make borrowing more affordable for businesses and consumers, thereby boosting investment and consumption.

This is the first rate cut by the RBI since the COVID-19 crisis, indicating a decisive move towards supporting economic recovery.

The upcoming monetary policy meeting in April will be closely watched, as it is expected to shape the RBI’s next course of action in response to inflation and economic growth indicators.