The Reserve Bank of India (RBI) may cut interest rates by 25 basis points in the fourth quarter of this year if high-frequency data since June continues to show strong performance, a report said on Wednesday. According to the report from HSBC Global Investment Research, due to the high growth and inflation forecasts by RBI for one year, some market participants believe that RBI will be hesitant to ease further, but the central bank may lower its forecast and cut rates.
“If high frequency activity indicators stay weak in the coming months, the RBI is likely to lower its growth forecast. A 25 bps repo rate cut is expected in Q4, bringing the repo rate to 5.25 per cent,” the report said.
The RBI maintained the policy rate at 5.50 per cent in its August meeting after a significant easing in the previous session.
Inflation stood at 1.6 percent year-on-year; although food prices rose gradually, energy prices fell and core inflation moderated, pushing inflation to an eight-year low. The sequential momentum slowed to 0.1 per cent. The average sequential momentum over the past six months has remained stable.
CPI inflation is expected to average 3.2 per cent in FY26, driven by favourable base effects, well-stocked food stocks, healthy Kharif crop sowing, and weak commodity prices.
Vegetable prices, which had been at inflation levels for the past six months, rose faster than expected, leading to the unexpected figures today, the report said.
Excluding vegetables, core inflation declined to 3.6 per cent from 3.8 per cent earlier.
Food prices recovered from deflation after six months, rising by 0.2 per cent. Heavy cereals, with a weightage of 9.7 per cent, continued to contract for the second consecutive month.
“Falling prices of pulses, sugar, and fruits partially offset the rise in prices of edible oil, eggs, meat, fish, and vegetables. The annual print remained in the red, pulling down the headline number to an eight-year low,” the report added.
The energy index fell sharply, falling 0.7 per cent on a seasonally adjusted monthly basis. It comprises petrol, diesel, fuel and light. The sharp sequential decline can be explained by the reduction in electricity and LPG prices on a sequential basis, the report said.
With the inputs of IANS
