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Bank of America (BofA) analysts projected that the Reserve Bank of India (NSE:BOI) (RBI) is likely to continue its policy easing trajectory by cutting the repo rate to 6.00% in the upcoming Monetary Policy Committee (MPC) meeting scheduled for April.
This anticipated 25 basis points reduction comes amid an environment where economic indicators suggest a non-inflationary growth range, with headline inflation expected to remain below 4% in the coming months, and a significant easing of pressure on the exchange rate.
The RBI’s current fiscal year 2026 (FY26) gross domestic product (GDP) growth projection stands at 6.7%, slightly higher than the forecasts by BofA and the Ministry of Finance, which predict a growth of 6.5% and between 6.3%-6.8%, respectively.
Despite recent upward revisions to the GDP base, BofA does not foresee any substantial changes to these projections, although there might be modest downward adjustments by the RBI.
Inflation projections are also set to be undershot, according to BofA’s tracking estimates. The RBI’s fourth quarter FY25 inflation projection of 4.4% is likely to be exceeded by 40-60 basis points.
For FY26, the forecasted inflation rate of 4.2% is considered slightly high by BofA, given the declining oil prices, a stabilizing rupee, and subdued aggregate demand. The RBI may further lower its near-term inflation projections while maintaining the consumer price index (CPI) projections around 4% for FY26.
The rate-cutting cycle initiated in the February MPC meeting is expected to persist, with BofA anticipating a total of 100 basis points of cuts in this cycle, inclusive of the 25 basis points already implemented in February. This would bring the repo rate down to 5.50% by the end of 2025, which BofA identifies as close to the neutral rate.
The April MPC is also expected to feature forward guidance, reassuring that monetary policy will prioritize reviving growth while keeping inflation within the RBI’s tolerance band of 2-6%.
Furthermore, BofA expects the RBI to maintain ample liquidity in the banking system. Since December, the central bank has reportedly added at least 5 trillion Indian rupees of durable liquidity through variable rate repo operations, bond purchases, and forward swaps.
The RBI is poised to continue providing support in the upcoming months to enhance credit availability, aligning with BofA’s expectations for the April policy meeting.
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