RBI May Extend Rate-Cut Cycle Amid Economic Slowdown Concerns

The Reserve Bank of India might extend its rate-cutting strategy beyond August 2025 due to potential economic slowdowns, as reported by ANZ Group. The report highlights risks from extreme weather, impacts on inflation, and the necessity for RBI's ongoing liquidity support, amidst fiscal adjustments by the government.

The Reserve Bank of India (RBI) may continue its rate-cut cycle beyond August 2025 if economic growth falters, according to a report by ANZ Group. The report anticipates three more rate cuts of 25 basis points each by August 2025.

However, the forecast includes a significant risk from extreme weather conditions, which could disrupt food supply and prices, thereby influencing inflation and monetary policy decisions. Continued favorable weather might permit extending the rate-cut cycle if growth remains weak. ANZ notes that RBI's liquidity support will likely persist to enhance the rate cuts' economy-wide impact.

The report further mentions that the RBI reduced its policy rate by 25 basis points in February 2025 and maintained a neutral stance, leading to unexpected inflation declines that offer greater leeway for supporting growth. This liquidity support is crucial for stimulating borrowing and investment, which in turn boosts economic activities.

On fiscal matters, the government has unveiled a contractionary budget aimed at lowering the fiscal deficit to 4.4 percent of GDP for FY26. This involves reduced revenue spending alongside higher tax collections. While an economic downturn could threaten fiscal targets, effective management is expected. Capital expenditure remains at a sustainable 3 percent of GDP.

Looking forward, from FY27, the fiscal strategy will shift towards managing the debt-to-GDP ratio, aiming for a 50 percent target by FY31. This indicates that the fiscal deficit ratio may not need to drop below 4 percent of GDP shortly.

Overall, the report concludes that the government's fiscal discipline, combined with RBI's liquidity support, will help the Indian economy maintain stability and growth despite potential challenges. (ANI)

(With inputs from agencies.)