Reserve Bank Expected to Extend Rate Cuts: Sakshi Gupta

Udaipur: The Reserve Bank of India (RBI) is expected to continue its rate-cutting cycle with another 25 basis points (bps) reduction in April, according to HDFC Bank Principal Economist Sakshi Gupta. Reacting to the RBI’s latest Monetary Policy Committee (MPC) decision, she noted that future interest rate reductions would depend on domestic and global economic conditions.

In a strategic shift, the RBI cut the policy rate by 25 bps, prioritizing economic growth over inflation control. This decision was reinforced by Governor Shaktikanta Das’s emphasis on “flexibility” in the inflation target framework, marking a departure from the earlier commitment to achieving a 4% median inflation target.

Despite the rate cut, the MPC retained its neutral stance, signaling a cautious approach towards further rate reductions in the current cycle. The central bank also refrained from excessive liquidity measures, ensuring that liquidity pressures persist in the near term.

Liquidity Outlook and Policy Implications

Liquidity conditions are expected to remain tight due to factors like advance tax outflows as the financial year-end approaches. However, the RBI is likely to address this with liquidity infusion tools such as Open Market Operations (OMOs), buy/sell swaps, and longer-duration repos.

The central bank reaffirmed its confidence in the disinflation process, forecasting inflation to average 4.2% in FY26 while projecting economic growth at 6.7%—towards the upper end of the government’s estimated range of 6.3-6.8%.

Meanwhile, the RBI adopted a balanced regulatory approach, weighing benefits and costs. However, no further clarity was provided on the implementation of the new Liquidity Coverage Ratio (LCR) norms.

Outlook for Future Rate Cuts

Sakshi Gupta predicts that the RBI will frontload another 25 bps rate cut in April. However, further reductions will be contingent on how domestic and global economic headwinds evolve.

With inflation showing signs of moderation and economic growth remaining steady, the RBI’s next moves will be closely watched by investors and policymakers alike.