Expect a 25-bp rate cut, but no change in stance

As headline inflation moves closer to RBI's target, and growth momentum remains elusive, a rate cut may be on the cards

- TAMAL BANDYOPADHYAY

In March, the US Federal Reserve kept policy rates unchanged, extending the pause that began in January after three successive rate cuts. It preferred to wait and assess the impact of US President Donald Trump's economic policies. The Fed is now closely watching two key factors: Is inflation heading towards the 2 per cent target? And is the US economy weakening more than what the central bank expected?

For the second consecutive time, the Fed has held borrowing costs steady after bringing them down to the 4.25-4.5 per cent range in December 2024—a level last seen in December 2022.

The Fed's latest projections signal two rate cuts during the current year, but the market is expecting more as the economy may weaken more than anticipated and inflation could turn out to be higher.

The Bank of England also kept its policy rate unchanged at 4.5 per cent in its March meeting, factoring in rising global trade uncertainties that escalated into a full-blown trade war last week. It had previously cut the policy rate by 25 basis points in February.

There was no surprise in the decision to hold rates, but Bank of England Governor Andrew Bailey was explicit about the rate outlook when he said the Bank still believed rates were "on a gradually declining path". Economists expect two more rate cuts this year, with the first likely in May. Inflation remains above the 2 per cent target.

China, too, kept its policy rates unchanged in the third week of March, after a 25 basis point cut in October 2024. Its central bank has been balancing a modest pickup in growth with pressure on the currency amid an escalating trade war.

What's the Reserve Bank of India (RBI) expected to do this week?

First, let's examine what has changed in India since the February policy announcement.