RBI will cut interest rates again on April 9, with only one more cut in August

The Reserve Bank of India will cut rates in a row at its second meeting on April 9, with only one more cut expected in August, a Reuters poll of economists finding, which would be the shortest easing cycle on record.

India's inflation rate fell to a seven-month low of 3.61% in February. The economic growth rate is expected to be 6.4% this fiscal year, the lowest in four years, and the central bank has room to further cut interest rates.

An overwhelming majority of economists (54 of 60 in a Reuters poll from March 18 to 27) expect the Reserve Bank of India to cut its benchmark repo rate by 25 basis points to 6.00% at the end of its April 7-9 meeting.

One respondent predicted a 50 basis point cut in rates, while the remaining five expected rates to remain unchanged.

"There is not a lot of strong growth momentum in fiscal 2026 and they (the Reserve Bank of India) need to maintain their support for growth. Inflation also creates a lot of room for them to ease. So I think they should use this space and readjust monetary policy," said Dhiraj Nim, an economist at ANZ Bank.

“They have injected liquidity, which has made up for the liquidity deficit to some extent, which is a good thing. But I think interest rates also need to come down now because we have seen a clear slowdown in consumption and investment, and real interest rates need to adjust from that perspective.”

The Reserve Bank of India has pumped about Rs 6,400 crore into the banking system in the past few months to increase money supply, which economists say is necessary for rate cuts to impact the overall economy.

However, several economists interviewed by Reuters said that goal could still be months away.

"If there is a need for transmission, especially in a rate cut cycle, (banking sector) liquidity needs to remain positive," said Indranil Pan, chief economist at the Central Bank of Iran.

The median forecast in the survey showed the Reserve Bank of India will keep interest rates unchanged at 6.00% at its June 4-6 meeting. However, by a narrow margin, 29 of 49 economists predicted that rates would be cut to 5.75% at the August meeting, a view that remained unchanged from last month.

A longer suspension is expected to follow, lasting at least until the first half of next year. This round of interest rate cuts will involve a total of 75 basis points in cuts, which will be the shortest easing cycle since the Reserve Bank of India began using the repurchase rate as its main policy tool in early 2000.

“I think it will be a mini-rate cut cycle, depending on what’s happening globally, the drag from capital outflows and what the Fed does,” said Sakshi Gupta, chief economist at HDFC Bank.

“We have been expecting the RBI to cut rates a maximum of three times and apart from the April cut, our expectations for cuts in June and August remain split.”