Key Points

The data intelligence firm added in the report that the rate-cut cycle that began in February is likely to continue, with a further 25-bps reduction in the repo rate expected at the June meeting, while retaining an "accommodative stance".

"The healthy growth momentum and the already easing money market rates may prompt the RBI to take incremental steps in policy easing, reducing the likelihood of a larger rate cut in this meeting," CareEdge said in the report.

The report further added, "We anticipate the policy statement to strike a dovish tone while remaining cautious about evolving global developments."

The report cites the ease in retail inflation, saying that the Consumer Price Index (CPI) in April fell to 3.2 per cent, marking a six-year low.

The retail inflation has also stayed below the 4 per cent threshold for three consecutive months, and the decline in food and beverage inflation contributed to this lower inflation rate.

Inflation in the food and beverages category decreased to 2.1 per cent in April, from a peak of 9.7 per cent in October 2024.

The report highlighted that despite the improvements in the economic growth figures, the external headwinds remain a concern. These concerns are likely to share the sentiments of the RBI's MPC.

The Indian economy grew by 6.5 per cent in real terms in the recently concluded financial year 2024-25, while it grows by 7.4 per cent in the January-March quarter (Q4) of FY25. This was a sharp rise from the 6.2 per cent recorded in the previous quarter.

On the demand side influences, private consumption has moderated to 6 per cent in Q4 from 8.1 per cent in Q3.

Rural demand is expected to be supported by favourable agricultural output and easing inflation, while the outlook for urban demand remains mixed, likely impacting the decisions.

Further, as per the CareEdge Ratings, while economic activity has improved compared to H1 FY25, assessing whether the recovery is broad-based and whether the growth momentum can be sustained amid persistent global uncertainties remains crucial.

Much of the top line growth in Q4 was driven by higher net indirect tax collections and a moderation in import demand, rather than a widespread improvement across sectors.

"Although agriculture and services have shown resilience, several concerns remain. Subdued manufacturing growth, uneven consumption demand, a delayed recovery in private capital expenditure, and weak exports are key factors that warrant close monitoring," the report added in its analysis of possible decisions of the MPC that is scheduled on Friday.

- ANI