She added that a combination of favorable factors—including a likely sub-4% inflation print in May, falling crude oil prices, and an expected above-normal monsoon—could provide the RBI’s Monetary Policy Committee (MPC) room to prioritise economic growth.
“The benign April 2025 headline inflation print, expectations of another sub-4% print in May 2025, the dip in crude oil prices in the recent weeks, and the IMD’s forecast of an above normal monsoon in 2025 as well as an early onset in Kerala will allow the MPC to continue to place a higher weight on growth vis-à-vis inflation, when it meets in June 2025,” Nayar said.
ICRA expects CPI inflation to average 3.5% in FY2026, with Q2 and Q3 readings likely to undershoot the MPC’s projections. This could pave the way for rate cuts totaling 75 basis points (bps) this calendar year. “A 25 bps rate cut appears forthcoming in the June 2025 policy, followed by easing of 25 bps each in the August and October 2025 policy reviews,” she noted.
However, the timing and magnitude of rate action may hinge on GDP data. If the GDP growth print for Q4 FY2025 does not report an acceleration from the 6.2% seen for Q3 FY2025, the MPC may consider frontloading the rate easing, with a 50 bps cut in the upcoming review.