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Key Points

The Reserve Bank of India is poised for significant monetary policy adjustments in the upcoming fiscal year. HSBC Global Research predicts a steady reduction in repo rates, potentially bringing them down to 5.5% by FY26. Inflation is expected to remain well below the RBI's target, with CPI projected at 3.7% and food prices showing continued downward pressure. The forecast suggests favorable economic conditions, including a normal monsoon and potential easing of global inflationary pressures.

Key Points: RBI Rate Cuts to 5.5% HSBC Predicts Inflation Easing

  • RBI expected to cut rates by 25bp in June and August
  • CPI inflation forecast at 3.7% for FY26
  • Food prices showing deflationary trends
  • Wholesale prices remain benign
2 min read

RBI to take rate cut down to 5.5 pc in FY26, CPI inflation to average 3.7 pc: HSBC

HSBC forecasts RBI to cut repo rates, expects CPI inflation at 3.7% in FY26 with favorable economic conditions

"The April inflation print is trending close to March levels - HSBC Global Research Report"

New Delhi, April 16

The RBI has already embarked on a rate cutting cycle, and a report by HSBC Global Research said on Wednesday that it expects a 25bp rate cut in each of the June and August policy meetings, taking the repo rate down to 5.5 per cent this fiscal (FY26).

Furthermore, it also expects easy liquidity conditions to persist and help in the transmission of rate cuts.

The CPI inflation in March came in at 3.3 per cent, lower than the market expectation of 3.5 per cent.

Food prices remained in deflation for the third month, down 0.7 per cent on-month, led by falling vegetable, pulses and egg, fish and meat prices.

The sequential momentum in cereal and milk prices was benign, while that of sugar and fruits was high.

“The April inflation print is trending close to March levels. Vegetable prices in the first 10 days of April have eased by 0 to 5 per cent (on-month) on the back of a sharp fall in onion and tomato prices,” said the HSBC report.

It forecasts CPI headline inflation to average 3.7 per cent in FY26, well below RBI target and forecast (of 4 per cent).

Food inflation is likely to fall further from April onwards when the new wheat crop hits the market.

“Furthermore, the IMD has issued a ‘normal’ monsoon forecast for 2025. Core inflation, too, will likely remain soft, led by the recent appreciation of the rupee, imported disinflation from China, softer oil prices, and weaker domestic growth,” said the report.

At the wholesale level too, March prices remained benign, with WPI inflation easing at a faster clip than CPI inflation for core categories.

The February Index of Industrial Production (IIP) grew 2.9 per cent (on-year), lower than market expectation of 3.6 per cent.

“Our framework of 100 indicators of growth shows that the March quarter looks better than previous two quarters but remains well below June 2024 (66 per cent indicators are in the positive vs 62 per cent in the December quarter),” the report mentioned.

- IANS

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Reader Comments

R
Rajesh K.
Finally some good news for home loan borrowers! The rate cuts will be a big relief. Hope banks pass on the full benefit to customers this time 🤞
P
Priya M.
While lower inflation is great, I'm concerned about farmers with food prices in deflation. My uncle grows vegetables and his profits have been shrinking. The economy needs balance.
A
Amit S.
Interesting analysis but I feel HSBC might be too optimistic about monsoon forecasts. Last year's prediction wasn't accurate. Let's see how it plays out.
S
Sunita R.
The falling tomato and onion prices are such a relief! My monthly grocery bill has finally come down after months of crazy prices. Hope this continues 🍅🧅
V
Vikram J.
Good analysis but missing one key point - how will this affect FD rates? Retirees depend on interest income which has been falling steadily. RBI needs to consider all stakeholders.
N
Neha T.
The IIP numbers are concerning though. Rate cuts alone won't boost manufacturing - we need better infrastructure and policies to support industries.

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