The latest survey shows that due to a significant slowdown in India's economic growth and inflation falling below target levels, economists widely expect the Reserve Bank of India to cut interest rates again on June 6, with the possibility of further easing monetary policy in August.
The survey, conducted between May 19 and 28, compiled predictions from 61 economists, with 53 of them predicting that the Reserve Bank of India (RBI) will reduce the benchmark repo rate by 25 basis points to 5.75% after the policy meeting scheduled from June 4 to 6. Two others expected a 50 basis point cut, while the remaining six believed the rate would remain unchanged.
Room for Rate Cuts, Cycle May End Mildly
Slowing economic growth and moderate inflation provide the Reserve Bank of India with substantial policy maneuvering space. Data shows that India's GDP growth in the last fiscal year fell sharply to 6.3% from more than 9% in the previous year, with the current inflation rate below the RBI's mid-term target of 4%.
Most analysts expect that in the current economic context, the RBI will cut rates again by the end of August. The survey found that 47 respondents (around 80%) predicted the benchmark rate would drop to 5.50% by then. This proportion has increased significantly from the slight majority supporting rate cuts in last month's survey, reflecting an increased market expectation for easing.
However, the current market anticipates a total rate cut of 100 basis points, and if this prediction is realized, it would mark the shortest and mildest easing cycle by the Reserve Bank of India in over a decade.
The survey also indicated that if a trade agreement between the US and India is not smoothly reached, the Reserve Bank of India may opt for more substantial rate cuts to counter external pressures.
Stock Market Bullish, Economic Growth to Recover Modestly
Despite concerns about high valuations in the Indian stock market, another Reuters survey predicts that the Indian stock market is expected to reach new heights by the end of 2025, reflecting a relatively optimistic outlook on economic fundamentals.
The survey also forecasts that India's GDP will grow by 6.3% in the 2024/25 fiscal year, with growth advancing to 6.5% in the following fiscal year. Overall, analysts generally believe that moderate monetary policy easing and robust consumer demand will help maintain the momentum of India's economic recovery.
