SBI Predicts 75 Basis Points Rate Cut Amid Falling Inflation

Experts See Inflation Easing to 3.9% in Q4 FY25, Setting Stage for Policy Rate Reductions

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New Delhi, March 13: A 75-basis-point rate cut could be on the horizon as SBI Research’s Ecowrap report projects a steady decline in inflation, prompting expectations of successive rate cuts in April and June 2025.

Analysts foresee CPI inflation easing to 3.9% in Q4 FY25, with an annual average of 4.7%. Looking further ahead, inflation in FY26 is expected to hover between 4.0% and 4.2%, with core inflation at 4.2%-4.4%.

“With benign inflation this month and going forward, we expect a cumulative rate cut over the cycle to be at least 75 basis points, with successive rate cuts in April and June 2025. The rate cut cycle could resume in October 2025 after a pause in August,” the report stated.

Inflation Hits Seven-Month Low, Driven by Falling Food Prices

India’s consumer price index (CPI) inflation dropped to a seven-month low of 3.6% in February 2025, largely attributed to a sharp decline in food prices.

• Food & Beverages inflation eased to 3.84%, led by a significant drop in vegetable prices.
• Vegetable inflation turned negative for the first time in 20 months, with garlic, potatoes, and tomatoes seeing major price cuts.
• Analysts believe the MahaKumbh festival contributed to lower garlic consumption, while fruit prices surged due to increased demand during fasting periods.

Despite the decline in domestic inflation, imported inflation surged dramatically, rising from 1.3% in June 2024 to 31.1% in February 2025.

• This surge was driven by higher prices of precious metals, oils, and chemical products.
• The depreciation of the rupee could further impact imported inflation in the coming months.

Industrial Growth Strengthens, Corporate Sector Remains Resilient

India’s industrial production (IIP) showed robust growth, rising to 5% in January 2025 from 3.2% in December 2024.

• The manufacturing sector led the way, growing by 5.5%, while mining expanded by 4.4%.
• However, cumulative IIP growth from April 2024 to January 2025 stood at 4.2%, lower than the 6% recorded in the same period last year.

The corporate sector also demonstrated resilience, despite economic uncertainties.

• 4,000 listed companies reported an average revenue growth of 6.2% in Q3 FY25.
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) rose by 11%, while profit after tax (PAT) increased by 12% year-over-year.
• Sectors such as Capital Goods, Consumer Durables, FMCG, Healthcare, and Pharmaceuticals showed strong earnings growth.

Rate Cuts, Lower Inflation, and Strong Growth: A Positive Outlook with Key Risks

With falling inflation, an expected rate cut cycle, and stable corporate earnings, India’s economy appears to be on a stable trajectory. However, rising imported inflation and global economic uncertainties remain potential challenges.

As the Reserve Bank of India (RBI) prepares for its next monetary policy review in April 2025, all eyes will be on how the central bank balances rate cuts while managing global risks and currency volatility.

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SBI research, rate cut, inflation trends, Indian economy, monetary policy, RBI policy, CPI inflation, industrial growth, corporate earnings, food inflation, global economic risks

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