RBI Likely to Cut Rates by 25 bps Amid Trade Tensions and Cooling Inflation

The Reserve Bank of India’s Monetary Policy Committee (MPC) began its three-day meeting on April 7, with its key announcement due tomorrow, on Wednesday, April 9 by new RBI governor, Sanjay Malhotra. Most economists and market experts anticipate a 25 basis point (bps) cut in the repo rate, following a similar move in February that brought the rate down to 6.25%.

This meeting marks the second policy review under RBI Governor Sanjay Malhotra and comes against a backdrop of improving domestic economic indicators but rising global uncertainty. In a positive set of developments, retail inflation dropped to 3.6% in February, a seven-month low, staying well below the RBI's 4% target.

Food inflation in India has also eased significantly, with the food and beverages segment showing a sharp fall from 9.7% in October 2024 to 3.8% in February 2025. Core inflation too remains below 4%. At the same time, GDP growth has shown signs of recovery, rising from 5.6% in Q2 FY25 to 6.2% in Q3. However, this is still below India’s long-term growth potential. Weak private investment, slow infrastructure spending, and uneven domestic demand continue to pose challenges.

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Adding pressure are global trade tensions following the US President Donald Trump’s announcement of steep reciprocal tariffs, including a 26% duty on some Indian exports. These developments could weigh on India’s export earnings and industrial output.

Read more about reciprocal tariffs on some Indian exports

Most experts believe the RBI will continue its shift towards supporting growth through rate cuts. Economists from institutions like Acuit Ratings and IDFC First Bank expect a 25 bps cut, but caution against frontloading more aggressive cuts due to ongoing global uncertainty and trade negotiations.

On the liquidity front, the RBI has infused Rs 6.8 lakh crore into the banking system through various tools like OMOs, repo auctions, and forex swaps. This has reduced the liquidity deficit from Rs 2 lakh crore in January to Rs 1.6 lakh crore in March. However, liquidity remains tight for NBFCs and smaller businesses.

Market participants are also watching for changes in the RBI’s monetary policy stance—whether it remains "neutral" or shifts to "accommodative." Most expect the repo rate to bottom out around 5.5% in this easing cycle.

Conclusion:

Even though the inflation stays under control as well as growth shows signs of revival, global trade tensions present a new risk. The RBI is likely to cut rates by 25 bps on April 9, maintaining a cautious but supportive stance to balance domestic needs against global uncertainties.