What to Expect from RBI's Upcoming Monetary Policy Meeting: Insights and Predictions

RBI's Monetary Policy Committee Meeting Insights

Mumbai: The Reserve Bank of India (RBI) has commenced its Monetary Policy Committee (MPC) meeting from April 7 to April 9. According to a report from SBI Research, a reduction of 25 basis points in the policy rate is anticipated, with an overall decrease of at least 100 basis points expected throughout the cycle, including two consecutive cuts in February and April.

The report suggests that following a pause in June, the next phase of rate reductions could begin in August.

From February 2025 to March 2026, a total cut of at least 100 basis points is projected, with 25 basis points already reduced in February 2025 and an additional 75 basis points expected in the remainder of FY26. This adjustment is expected to reflect similarly in the External Benchmark Lending Rate (EBLR) and a 60 basis point reduction in the Marginal Cost of Funds based Lending Rate (MCLR).

The report also indicates that the neutral nominal policy rate is estimated to be around 5.65 percent based on current natural rate assessments.

Considering anticipated average inflation and the output gap resulting from various GDP projections, a cumulative reduction in policy rates of 75 to 100 basis points is likely in the near future.

The RBI's MPC decision is set to be announced on April 9, which will shed light on the Reserve Bank's policy direction and the economic outlook for India.

CPI inflation is expected to decrease to 3.8 percent in the fourth quarter of FY25, averaging 4.6 percent for the entire fiscal year.

For FY26, average CPI inflation may range between 3.9 and 4.0 percent, with core inflation projected to be around 4.2 to 4.3 percent.

The report notes that while headline inflation is likely to trend downward until September or October, it may rise afterward. The imposition of reciprocal tariffs by the US on various economies, exceeding those on India, could lead to concerns about dumping into India, thereby contributing to lower inflation.

Additionally, durable liquidity is expected to remain in surplus during FY26, bolstered by factors such as Open Market Operations (OMO) purchases, RBI's dividend transfers, and a Balance of Payments (BOP) surplus estimated at around USD 25-30 billion for FY26.