RBI likely to cut rates to 5.5 percent

New Delhi

The Reserve Bank of India (RBI) may lower its key interest rate to 5.5 percent in the financial year 2025–26, according to HSBC Global Research. The bank expects a 25 basis point (bp) rate cut in both June and August this year. This move would help boost the economy by making borrowing cheaper.

HSBC says that easy liquidity will continue, which will help the rate cuts reach the public more effectively.

In March, consumer price index (CPI) inflation was 3.3 percent, lower than expected. Food prices dropped for the third straight month, falling 0.7 percent from February. Prices of vegetables, pulses, eggs, fish, and meat declined. Cereal and milk prices stayed calm, while sugar and fruit prices went up.

April’s early numbers show vegetable prices have dropped again, especially for onions and tomatoes. HSBC predicts that CPI inflation will average 3.7 percent this year, below the RBI’s 4 percent target. With the new wheat harvest coming soon, food prices may fall more.

The Indian Meteorological Department has forecast a normal monsoon for 2025. Core inflation may stay low due to a stronger rupee, cheaper imports from China, low oil prices, and slower local growth.

Wholesale prices were also soft in March. The Wholesale Price Index (WPI) inflation decreased faster than the CPI for major goods.

India’s industrial production grew 2.9 percent in February, less than the expected 3.6 percent. Still, HSBC’s growth tracker says the economy is improving compared to the last two quarters, though still behind June 2024 levels. About 66 percent of indicators showed positive signs, up from 62 percent in December.