In a major development for India’s economic landscape, the Reserve Bank of India (RBI) is expected to implement a 75 basis point (bps) repo rate cut in 2025, bringing relief to borrowers and businesses alike. According to the latest SBI Research Ecowrap report, the rate reductions are likely to occur in three phases—April, June, and October—each by 25 bps.
This anticipated monetary policy shift comes as inflationary pressures ease, industrial production picks up, and the corporate sector demonstrates resilience despite global uncertainties.
Why the Rate Cuts? Understanding the Economic Indicators
SBI’s research projects Consumer Price Index (CPI)-based inflation to fall to 3.9% in Q4 FY25, with an average inflation of 4.7% for the entire year. The declining inflation rate, coupled with strong industrial growth, has paved the way for a more accommodative stance from the RBI.
For FY26, inflation is expected to remain stable between 4.0% and 4.2%, with core inflation slightly higher at 4.2% to 4.4%. These projections suggest that India’s economy is gradually moving towards a more stable inflationary environment, making a series of rate cuts feasible.
The Driving Factors Behind Inflation Trends
One of the most notable trends in February 2025 was the sharp decline in food inflation, which dropped to 3.84%, thanks to plummeting vegetable prices. For the first time in 20 months, vegetable inflation turned negative, primarily due to major price drops in garlic, potatoes, and tomatoes.
Interestingly, the MahaKumbh festival played a role in reducing garlic consumption, while fruit prices surged due to increased demand during fasting periods.
However, while domestic inflation has eased, imported inflation has surged dramatically—from just 1.3% in June 2024 to a staggering 31.1% in February 2025. This spike is attributed to rising global prices of precious metals, oils, and chemical products. The depreciating rupee could further contribute to inflationary pressures in the months ahead.
India’s Industrial and Corporate Performance: A Silver Lining
Despite global headwinds, India’s industrial production (IIP) posted strong growth of 5% in January 2025, up from 3.2% in December 2024. The manufacturing sector led with a 5.5% increase, while mining expanded by 4.4%.
Although cumulative growth from April 2024 to January 2025 stood at 4.2%—lower than last year’s 6%, the corporate sector showed remarkable resilience.
According to SBI Research, around 4,000 listed companies reported:
✔ 6.2% revenue growth in Q3 FY25
✔ 11% rise in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
✔ 12% growth in Profit After Tax (PAT) compared to the previous year
Sectors such as Capital Goods, Consumer Durables, FMCG, Healthcare, and Pharmaceuticals showed robust expansion, reinforcing India’s economic stability amid global turbulence.
What This Means for the Indian Economy
With lower inflation, expected rate cuts, and strong corporate performance, India’s economy appears to be on a stable footing. However, the rising cost of imports and global economic uncertainties remain key risk factors.
As the RBI gears up for a 75-bps rate cut cycle, borrowing costs are expected to decline, encouraging higher investments, increased consumer spending, and further economic growth.
For businesses, these monetary policy adjustments could provide a much-needed boost, fostering an environment of greater liquidity and financial flexibility.
With April’s Monetary Policy Committee (MPC) meeting just around the corner, all eyes will be on how RBI responds to these evolving economic trends. Will the central bank stay on course with the expected rate cuts, or will global uncertainties prompt a rethink? The coming months will be crucial in shaping India’s monetary policy trajectory for 2025 and beyond.
