RBI Rate Cut Path: 3.61% CPI Inflation, Liquidity Deficit
Why in the news
Economists felt cooler inflation would not trigger deep RBI rate cuts, as the system was short of liquidity and the earlier cut had not fully reached lending rates.
Key facts
- CPI, February 2025: 3.61% (from 4.3%); lower vegetable prices drove the fall. UBS sees FY25-26 average at 4.2%.
- Repo rate: cut by 25 bp to 6.25% in February 2025.
- Liquidity deficit: ₹1.38 trillion; RBI used open market operations, daily variable rate repo auctions and forex swaps.
- Bond spreads and CD rates stayed high; MCLR-linked lending rates had not fully adjusted.
Economists’ forecasts
| Economist | Forecast |
|---|---|
| Gaura Sen Gupta (IDFC Bank) | 25 bp in April and 25 bp in June |
| Madan Sabnavis (Bank of Baroda) | 25 bp in April, pause in June |
| Rahul Bajoria (Bank of America) | 100 bp in total |
| Tanvee Gupta Jain (UBS Securities) | 50 bp in total from April |
Factors to watch
- US Federal Reserve decisions.
- Domestic growth, helped by consumer demand, exports and government spending.
- Global trade uncertainty, including possible reciprocal tariffs on India.
Exam angle
- Repo rate after the cut: 6.25%.
- Most expect a gradual easing cycle starting with April.