Kolkata: When the RBI governor Sanjay Malhotra announces the decision of the MPC (Monetary Policy Committee) meeting on April 9, he is likely to announce a 25 cut of the Repo Rate — the second such decision in consecutive meetings — setting the interest cycle firmly on a downward curve, said a report of SBI Research, while warning of triple pressure points on the external front. However, one big relief that the rate cut is likely to precipitate is the reduction in EMIs on personal loans, home loans and car loans which could inject some momentum in the lackluster consumption scenario that the country is passing through.
The 25 basis point rate cut in February prompted a number of banks such as SBI, PNB, Union Bank, Canara Bank and Bank of Maharashtra to prune lending rates. Experts think that those banks that haven’t yet entered the race won’t be able to sit out after a 50 basis point rate cut. The report also underlined its expectation that the total rate cut will touch 100 basis points by March 2026.
The global clouds
However, the SBI Research report sounded warnings of gathering clouds on the external front. “Global growth is likely to face significant headwinds due to non-linear yet intersecting trilemma of trade related tariff barriers, rapid currency swings and fractured capital flows, with no country being immune to the disruptions…. factoring in the impact of trade wars. global GDP may see downside of 30-50 bps in 2025…world export volume may decline from 2.9% in 2024 to 1.3% in 2025-26,” the report stated.
Hope for cooling inflation
A climate of lower inflation can help rate cuts and boost growth. Holding out hope for cooling inflation, the report mentioned, “CPI inflation may come down to 3.8% in Q4 FY25 and average to 4.6% in FY25… Average CPI inflation may come to 3.9-4.0% in FY26 and core inflation should come around in the range of 4.2-4.3%…vigil warranted on food inflation with a likely heat wave unfolding.” However, one has to look out for food inflation concerns if heatwave conditions wreck havoc on the agri front.
Banks will compete for deposits
As the interest rate cycle decisively enters the downward phase, banks will most likely face the heat of declining deposits. “Deposit mobilization of banks will remain a challenge in a rate easing cycle,” the report said predicting that the “war for domestic deposits will get intense in a rate easing cycle”. Obviously this could provide a slim cushion to millions of risk-averse people (especially the aged and retirees) who keep their money in bank fixed deposits.
The biggest bank of the country SBI joined the chorus of expert agencies hopeful of a second consecutive 25 basis rate cut tomorrow but it warned of darkening clouds on the external front such as fallout of the tariff war, currency swings and fractured capital flows. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
