April MPC Meeting Outlook: Will RBI Cut Rates To Fuel Growth As Inflation Cools?

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is set to shift its focus from inflation control to supporting economic growth in its upcoming April meeting. This move comes as headline inflation continues to moderate, aided by declining food prices. Inflation is projected to stay near the 4% target over the next three quarters, providing the MPC with room for a likely 25-basis-point repo rate cut.

"The central bank's priority will be to ensure that growth momentum is sustained without letting inflationary pressures build up," Rajani Sinha, Chief Economist at CareEdge.

Inflation Eases

Consumer Price Index (CPI) inflation fell to a seven-month low of 3.6% in February 2025, driven by lower food and beverage prices. Vegetable inflation turned negative, falling to -1.1%, and deflation in pulses further supported the decline. However, inflation in edible oil remains high at 16.4%, warranting close monitoring. The RBI is expected to maintain its FY26 CPI inflation projection at 4.2%.

According to Sinha, “The moderation in inflation provides the RBI with the flexibility to support growth, but vigilance is needed against potential price shocks.”

Growth Improves

India’s GDP growth rebounded to 6.2% in Q3 FY25 from 5.6% in Q2, yet remains below potential. The National Statistical Office (NSO) projects GDP growth at 6.5% for FY25, though experts predict a more modest 6.4%.

Sinha added further,"The recovery is encouraging, but structural reforms are needed to achieve consistent growth above 7%." The RBI is expected to continue liquidity measures, including OMO purchases, currency swaps, and VRR auctions, to address liquidity challenges. Despite efforts, liquidity remains in deficit due to tax collections and GST outflows.
 

External Volatility Remains a Key Risk

Global uncertainties, including geopolitical tensions and reciprocal tariffs, pose risks. President Trump’s anticipated announcement on tariffs against India on April 2 could impact trade relations. However, with US rate cuts expected, the RBI may have room for further easing if needed.

Sinha warned, "External risks could derail domestic recovery, making it essential for the RBI to remain flexible in its policy stance."

Outlook: Rate Cuts to Continue

The MPC is likely to cut rates by 25 basis points in April, with a potential second cut in FY26 if inflation stays controlled. The RBI’s cautious yet growth-focused stance will aim to navigate global uncertainties and bolster domestic growth.

The RBI’s focus on growth amid easing inflation reflects a strategic pivot to support the economy. While rate cuts may boost consumer spending and investment, the central bank must tread carefully to manage external risks and inflationary pressures. A calibrated approach will be crucial in fostering sustainable growth while ensuring economic stability.

"The RBI's focus on nurturing growth while containing inflation is crucial for sustainable economic stability," said Rajani Sinha.