The Reserve Bank of India’s (RBI) repo rate is expected to drop by 25 basis points (bps) to 6% after the ongoing Monetary Policy Committee (MPC) meeting, according to Goldman Sachs.
“We expect a 25bp repo rate cut from the RBI Monetary Policy Committee (MPC) at the April 9 meeting, taking the repo rate to 6%,” the report said, adding that it expects a 5.50% repo rate by year-end.
The financial services company said that several factors have created a favourable environment for the RBI to ease the policy rates. It points out that the domestic economic activity showed signs of moderation in the first quarter, as indicated by high-frequency data.
Inflation is expected to remain benign, with a financial services firm estimating March’s Consumer Price Index (CPI) inflation at 3.7%. In addition, a sharp drop in Brent Crude Oil prices and the US Dollar Index (DXY) following President Trump’s recent tariff announcements have contributed to the RBI’s likely decision to cut rates, as anticipated by the firm.
The report added that the banking system’s liquidity surplus which stands around Rs 1 trillion (approximately 0.5% of net demand and time liabilities), has been a result of RBI’s persistent liquidity injections, including a Rs 800 billion open market operation (OMO) purchase announced last week.
What Else For RBI MPC?
“With the inter-bank overnight rates now trading below the repo rate, the monetary policy stance (currently neutral) in this policy meeting is less relevant from the viewpoint of forward guidance on liquidity, in our view,” the report said.
Goldman Sachs also revised its economic growth forecasts for India. It downgraded its 2025 real GDP growth forecast by 30bps to 6.1% year-on-year, citing the US tariff hikes and a slowdown in services exports.
In terms of inflation, Goldman Sachs’s report anticipates headline CPI inflation to remain close to 4 per cent in the second half of 2025, driven by lower food inflation.
The report notes that while CPI inflation declined to a seven-month low of 3.6% year-on-year in February, core inflation, excluding volatile food items like vegetables, has remained below the RBI’s target for most of the past year. However, core inflation will go up to approximately 4% year-on-year in the coming quarters, anticipates the report.
On the liquidity front, the banking system’s liquidity position has shifted to a surplus of Rs 1.7 trillion as of April 3, 2025, compared to a deficit over the prior three months. This surplus was driven by the RBI’s proactive long-term liquidity measures since mid-January, amounting to Rs 5.9 trillion, or 2.6% of net demand and time liabilities.
