Jefferies Expects 25 Basis Points Repo Rate Cut By RBI This Year

The Reserve Bank of India (RBI) is likely to cut the repo rate by 25 basis points this year, and cumulatively by 1 percentage point as part of its departure from steady monetary policy, said investment banking company Jefferies in a report.

Jefferies' India office expects only a 25 basis points rate cut this year to 6.25 per cent and a total of 100 basis points in the forthcoming easing cycle, the investment company said in a report.

The next RBI monetary policy review meeting is scheduled for October 7-9. The loosening of the monetary policy rates may start soon, which was kept steady in nine consecutive meetings.

"While the formal inflation target is headline CPI, the reality is that it is influenced heavily by food prices which is out of the control of any central bank," read the report.

The RBI is projecting a 4.5 per cent Consumer Price Index or retail inflation 2024-25 ending March 2025. This compares with the official inflation target of 4 per cent, with a tolerance band of 2 percentage points on both sides.

Coming back to the monetary policy meeting that took place in early August, the RBI decided to keep the repo rate unchanged at 6.5 per cent, marking the ninth consecutive time the central bank has opted for stability in its monetary policy.

The decision to keep the repo rate steady comes amidst persistent concerns about inflation, which remained above the RBI's target range, barring the moderation lately. The central bank's commitment to bringing inflation down to its 4 per cent target on a sustained basis continues to face challenges due to ongoing food inflation.

The latest loosening of monetary policy stance by the US Federal Reserve seems to have opened the floodgate for other central banks to pursue cutting interest rates.

In a departure from the recent monetary policy stance by holding interest rates steady in eight straight meetings, the US Federal Reserve last week announced a steep 50 basis points interest cut. The silver lining is that the latest US inflation data (for August) showed that the inflation rate is steadily moderating towards the intended target. (ANI)