The Reserve Bank of India (RBI) is all set to begin its bi-monthly Monetary Policy Committee (MPC) meeting on Monday, April 8, to reassess economic conditions and decide on interest rates. The meeting gains critical significance amidst escalating global trade tensions triggered by recent tariff announcements from the United States.
The central bank is widely expected to announce a 25 basis point cut in its policy repo rate when it reveals its decision on Wednesday, April 9. However, a growing chorus of economists is urging the RBI to act more decisively and opt for a 50-basis-point rate cut to cushion the economy against external shocks.
"RBI should consider front-loading rate cuts, and a 50-basis-point cut in April can be a good pre-emptive move. Domestic inflation is low, globally, yields are coming down, and USDINR has regained some of its lost ground. These trends present a good opportunity for aggressive rate cuts," said Debopam Chaudhuri, Chief Economist at Piramal Group, in an interview.
According to Chaudhuri, the central bank should act boldly as inflation remains under control and the rupee has started regaining value. The recent improvement in USD-INR rates adds further justification for proactive monetary action.
While some economists support aggressive easing, others caution that the RBI may adopt a more balanced approach.
"We are going with a 25 basis points rate cut, as RBI will remain cautious until the situation of monsoon is more clear. However, the stance will be changed to accommodative, implying that after this, there is scope for more than one 25 basis points rate cut, depending upon the prevailing macro-economic situation," stated Sonal Badhan, Economics Specialist at Bank of Baroda.
During its previous meeting in February 2025, the Reserve Bank of India (RBI) had already started the current easing cycle by cutting the repo rate by 25 basis points, bringing it down from 6.5% to 6.25%. Since the beginning of 2024, the RBI has infused over Rs 5.2 trillion into the financial system via debt purchases and forex swaps.
As part of its April plan, the RBI is also scheduled to purchase bonds worth Rs 600 billion, adding further liquidity to the system and supporting credit growth.
According to a recent SBI report, the RBI is projected to pursue a total of 100 basis points in rate cuts during this easing cycle. The roadmap includes:
25 bps cut in February 2025 (already done)
25 bps cut in April 2025
A pause in June, followed by
Further cuts potentially resuming from August 2025
However, the report also warns of deposit mobilisation challenges for banks due to low tax-adjusted savings returns and a rising shift towards a Just-In-Time savings mentality.
Global markets remain jittery following US President Donald Trump's announcement of sweeping 'reciprocal tariffs' against nearly all imports from over 180 countries. Customs authorities have already started levying a 10% 'baseline' tariff, with higher rates targeting 57 major trading partners expected to roll out within the week.
The announcement has led to a global stock market sell-off and fears of a new trade war and global recession. India has not been immune, with the Sensex and Nifty continuing their downward spiral in response to these developments.
As the RBI's April Monetary Policy meeting kicks off, the global economic landscape remains fraught with uncertainty. Economists are divided on the central bank's likely course of action, with some advocating a bold 50 bps cut to shield the Indian economy from global shocks, while others urge caution due to monsoon-related unpredictability.
With inflation contained and the rupee strengthening, there appears to be fiscal room for easing. Meanwhile, Donald Trump's aggressive tariff policy has reignited global trade tensions, leading to severe market volatility.
The RBI’s upcoming decision could set the tone for the rest of 2025, with liquidity measures and interest rate direction playing a pivotal role in stabilizing markets and sustaining growth momentum.