Source: ET
Context:
The Reserve Bank of India is expected to keep its policy repo rate unchanged at 5.25% through the next fiscal year after a 25-basis-point cut earlier this month, according to BMI, part of Fitch Solutions.
Key Highlights:
- Rate Outlook: Fitch Solutions’ BMI expects the RBI policy repo rate to remain at 5.25% through FY2026‑27, following the recent 25 bps cut. The current rate is considered near its terminal level.
- Currency Forecast: The rupee is projected to trade around ₹90/USD by end‑2025 and ₹90.5/USD in 2026, reflecting a modest depreciation amid stable monetary policy.
- Policy Context: The RBI cut rates cumulatively by 125 bps in 2025 after aggressive hikes in 2022‑23, aiming to support growth while inflation remains subdued.
Economic Rationale
- Inflation: CPI inflation has fallen significantly, giving the RBI scope for continued accommodative policy.
- Growth: India’s GDP is forecast to remain robust, with strong domestic consumption and investment trends.
- Fitch notes that the current environment reflects a “Goldilocks” phase: low inflation and resilient growth, reducing the need for further rate adjustments.
Risks and Considerations
- External Risks: Prolonged trade disputes with the US may:
- Hurt exports due to tariffs
- Pressure GDP growth and currency value
- Domestic Risks: Inflation rebound and currency depreciation may influence future rate decisions.
- Growth vs Inflation: RBI balances resilient economic growth with expectations of softening momentum.
