The Reserve Bank of India (RBI) will deliver a final 25 basis point rate cut in the December monetary policy committee (MPC) meeting, taking the repo rate to 5.25 per cent by the end of 2025, a report said on Tuesday.
Considering the ease in inflation in recent months, the RBI may leave the repo rate unchanged in the next two MPCs.
“We forecast a pause in the August and October meetings. However, we believe the RBI will deliver a final 25bp rate cut in the December meeting, taking the repo rate to 5.25 per cent by end-2025,” a HSBC Global Research report said.
June CPI Inflation came in at much below the market expectation of 2.3 per cent. Meanwhile, the sequential momentum has been flat since April.
The current inflation can be attributed to much lower-than-anticipated food inflation, and it may reduce further as well.
“The average inflation in second quarter of 2025 was at 2.7 per cent, below the RBI’s forecast of 2.9 per cent,” the report said.
June WPI, too, came in much lower than expected ( -0.1 per cent year-on-year vs market expectation of +0.5 per cent).
On a seasonally adjusted sequential basis, wholesale prices have contracted by 0.5 per cent month-on-month (m-o-m), led by weak food prices, which have been in deflation since the start of 2025, the report said.
Food prices remained in deflation for the sixth month, down 0.6 per cent on-month. “The disinflation trend, which had been losing momentum in recent months, reversed course in the latest reading,” the report noted.
The declining prices of pulses, vegetables, cereals, and spices account for a large portion of the weakness. Fruits and edible oil were an exception, reporting price increases in the interim.
According to the report, the reduction in import duties from 20 per cent to 10 per cent (effective May 30) to control domestic prices seems to have been more than offset by the increase in edible oil prices worldwide.
Core inflation remains high due to rising gold prices.
The price of gold, which makes up 1.1 per cent of the CPI basket, increased 36 per cent year over year in June (compared to 32.4 per cent in May).
At the same time, the inflation print in July is trending below the 2 per cent mark – the RBI’s lower tolerance territory, the report stated.
