Repo Rate to Drop to 5.75%? SBI’s Latest Economic Analysis

SBI Research Predicts Rate Cuts by RBI

The latest analysis from SBI Research suggests the Reserve Bank of India (RBI) is likely to [[reduce interest rates]] soon. They predict the repo rate will drop to 5.75% from the current 6.5% during the current rate cycle. This is great news for many Indians as lower interest rates often mean cheaper loans. The experts at SBI Research are expecting the first cut in February 2024, with another in April. A pause is expected in June before a further reduction starts from October. This prediction is based on their assessment of the current economic situation.

Inflation Outlook and its Impact

According to the SBI Research report, India’s inflation, as measured by the Consumer Price Index (CPI), will average around 4.8% in 2025. This is expected to fall further to 4.5% in the fourth quarter of 2024 and to 4.2–4.4% in 2026. They also forecast core inflation, which excludes volatile items, to be in the range of 4.4–4.6% in 2026. This analysis helps the [[Reserve Bank of India]] to plan its monetary policy better. The report also points out a potential rise in core inflation above headline inflation by September 2025, primarily due to the impact of the base effect on inflation. However, the fact that the US Federal Reserve has paused its rate hikes gives the RBI more space to plan their moves.

Global Economic Impact and Trade Wars

The ongoing trade tensions and their impact are also considered. SBI Research estimates that the recent trade wars could cost the global economy 30-50 basis points of GDP growth. The report mentions that global markets have shown resilience and that global growth in 2025 is expected to be between 3.2% and 3.3%. The impact of tariffs on inflation in exporting countries will depend on whether currency changes or reduced demand is a bigger factor. While Canada could experience higher long-term inflation if trade wars continue, China’s impact is expected to be limited due to its diverse export market.

Indian Rupee and Liquidity

The SBI report also delves into the Indian Rupee. It suggests that long-term rupee volatility is largely driven by factors like real GDP growth, while the dollar index and interbank call money rates affect USDINR movement in the short-term. The research team found that using interest rates to control exchange rates in an inflation-targeting system isn’t ideal.

Liquidity and Credit Growth

SBI Research expects India’s system liquidity to reach a surplus of approximately 1 lakh crore by the end of the current financial year. They recommend the RBI consider using the Cash Reserve Ratio (CRR) as a tool to manage liquidity, not as the main way to control money supply. They also highlight a need to review the RBI’s liquidity management framework. Finally, the report observes a recent increase in credit growth after a period of decline. The report estimates credit growth to be between 11% and 12% in 2025.

Conclusion:

This analysis by SBI Research provides important insights into the current and expected economic situation in India, highlighting the key factors that will influence the RBI’s policy decisions in the coming months. It is important for all Indians to be aware of these economic developments and analysis. This is breaking business news with important market analysis updates for today.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top