Dollar's Weakness Permits RBI to Potentially Reduce Repo Rates, Suggests News Article
India On Track for Potential Interest Rate Reductions, According to Jefferies Report
New Delhi – A report from global financial services firm Jefferies suggests that the Reserve Bank of India (RBI) might lower interest rates further by up to 75 basis points (bps) by the end of 2025, chiefly due to the weakening US dollar.
The study indicates that this trend is also evident in other emerging markets, such as Indonesia. The report points out that both the RBI and Bank Indonesia have room to ease their respective interest rates, as the US dollar weakens.
Inflation trends have become increasingly negligible in India. The average consumer price inflation fell to 4.6% in the previous financial year and further dropped to 3.2% in April this year – the lowest since July. This decline in inflation has fueled expectations of more monetary easing by the RBI.
Since Sanjay Malhotra took the helm as the new RBI Governor in December, replacing Shaktikanta Das, the central bank has already reduced the repo rate by 50 basis points. Malhotra's approach is believed to be more accommodative, with the market perceiving the inflation trend as advantageous for equities due to the greater potential for rate cuts.
According to the Jefferies report, the same disinflationary trend is becoming increasingly apparent in India, which, in the market's view, is beneficial for equities, as it implies a greater potential for RBI rate cuts under the leadership of the more accommodative Governor Sanjay Malhotra.
The RBI's latest Annual Report projects average inflation of around 4% for the ongoing financial year, which ends in March 2026. However, Jefferies' India office believes there is room for an additional 75 basis points of rate cuts by the end of 2025, provided the current economic and currency conditions persist. This outlook, bolstered by easing inflation and global currency trends, could propel domestic growth and enhance the investment climate in the country.
The RBI cut the repo rate by 25 basis points in the April Monetary Policy Committee (MPC) meeting, reducing it from 6.25% to 6%.
The exact forecast of a 75 basis points cut by 2025 does not appear in the search results of the directly cited Jefferies report. While it is likely that the RBI will implement further rate reductions in the second half of 2025, the range of expectations from market polls and research institutions suggests a more gradual approach, with a preference for smaller, incremental rate cuts, rather than a large single cut.
Businesses in India may experience a boost due to the anticipated monetary policy changes, as indicated by the Jefferies report. The Reserve Bank of India (RBI) might lower interest rates by up to 75 basis points, potentially due to the weakening US dollar, decreasing inflation rates, and a more accommodative approach from the new RBI Governor, Sanjay Malhotra.
