“We expect the headline inflation in FY25 [fiscal 2024-25] to cool off to 4.7 per cent….The repo rate in February 2025 was cut by 25 bps to 6.25 per cent. The monetary policy actions in FY26 will be dependent on inflation movements, liquidity situation and trajectory of global commodity prices. Monetary easing may be limited to 75 bps in FY26,” Devendra Kumar Pant, chief economist and head of public finance at Ind-Ra, said in a company release.
Headline inflation in the country is likely to decline to below 4 per cent in the fourth quarter (Q4) of FY25. Ind-Ra expects the inflation intensity to decline further in FY26.
The rating agency expects quarterly inflation during Q4 FY25 to Q3 FY26 to undershoot the central bank’s quarterly inflation forecast and overshoot marginally in Q4 FY26.
It expects inflation to be below 4 per cent during Q4 FY25, Q2 FY26 and Q3 FY26 and annual inflation at 4 per cent in FY26.
The FY26 inflation forecast assumes normal monsoon rainfall in 2025, orderly currency depreciation, limited capital outflows, stable global commodity prices and low cyclical movements in the prices of perishable commodities and commodities with high import dependence.
Ind-Ra expects the RBI to go in for maximum three rate cuts in FY26, aggregating to 75 bps. These along with one rate cut in February 2025 would translate to a 100-bps cut in the current policy easing with the terminal repo rate at 5.5 per cent and average inflation at around 4 per cent, which would translate in a real repo rate of 1.5 per cent in FY26.
However, if the impact of US reciprocal tariffs turns out to be higher than the expectations, higher easing by the RBI may be seen, it added.
ALCHEMPro News Desk (DS)
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