RBI Policy: Is a repo rate cut on the horizon after US Fed holds interest rates steady? | Stock Market News

The US Federal Reserve’s decision to keep its policy rate unchanged in the 4.25%-4.50% range, along with its guidance for two rate cuts in 2025, has triggered fresh discussions on how central banks across the globe, including the Reserve Bank of India (RBI), will respond.

The RBI had initiated the repo rate-cut cycle in February. The repo rate was cut by 25 basis points (bps) to 6.25% from 6.5% on February 7, 2025.

US Fed Chair Jerome Powell’s comments on the impact of tariffs from the Trump administration on inflation and economic growth further add to the complexity of global monetary policy outlooks. With economic growth in the US projected at 1.7% and inflation at 2.7% in 2025, the Fed has also signaled a slower balance sheet reduction by April.

Market and Currency Implications for India

Market experts believe that the Fed’s cautious optimism has eased some global financial pressures, but emerging markets (EMs) may continue to experience volatility.

“While the cautiously optimistic US Fed has eased some market pressure, we feel EM assets will be in a push and pull phase, where a generally weakening DXY would be countered by higher global uncertainty. That said, we think that changing global narrative on growth and tariff noises may allow EM central banks, including the RBI, to be less defensive on the FX fight, implying some policy flexibility on rate settings in general,” said Madhavi Arora, Lead Economist at Emkay Global Financial Services Ltd.

Arora highlighted that the RBI’s consistent efforts to ease system liquidity will imply that durable liquidity will soon turn into a surplus.

“April rate cut possibility is solid, with one further cut possible ahead. However, we are keeping a tab on fluid global dynamics and FX knock-on effect as well – both of which would be important inputs in RBI’s reaction function,” she said.

Impact on Indian Markets and Capital Flows

Higher US interest rates often result in foreign capital outflows from emerging markets like India, whereas lower rates could increase inflows. Ravi Singh, SVP – Retail Research, Religare Broking Ltd., pointed out that market sentiment will largely depend on capital movements.

“Overall, this decision has mixed implications for currency movements, capital flows and market sentiment in India. Higher US interest rates could lead to foreign capital outflows from Indian markets, whereas lower rates may attract investment. Additionally, economic uncertainty in the US could contribute to market volatility. However, a stronger dollar may impact global commodity prices. As India is a major oil importer, lower oil prices could benefit the Indian stock markets,” said Ravi Singh, SVP – Retail Research, Religare Broking Ltd.

Potential for RBI Rate Cuts and Economic Growth

Experts believe that the Fed’s rate cut cycle could benefit India by boosting capital inflows and supporting the rupee.

Ajay Garg, CEO, SMC Global Securities Ltd., said, “The mix of higher inflation and lower GDP growth forecast in the US will likely benefit the emerging markets from capital inflows. With the expectation of a Fed rate cut in the near term, India stands to benefit from rupee appreciation as investors will move their investments to high-yield economies.”

Amidst the growing uncertainty at the global level, India is still experiencing stable GDP growth and lowering inflation. This will also help RBI to consider further rate cuts in 2025 which will increase consumer spending, boost borrowing activities, and improve liquidity in the market, he added.

RBI’s Next Move: A Rate Cut in April?

Many analysts anticipate that the RBI could cut repo rates in the upcoming April policy, given its liquidity stance and evolving global conditions.

“We have entered a shallower rate cut cycle, that continues to evolve with policies under the Trump regime and inflation expectations which are now stickier than previously expected. The policy guidance remained same despite changing macros which is currently being perceived positive by the investors. Fed’s ability to cut rates will largely depend on tariffs and their repercussions on inflation. Our continued positive bias on precious metals is materializing. China held the PLR rate constant following the Fed,” said Ankita Pathak, Fund Manager – Global Equities & Macro Strategist at Ionic Asset by Angel One.

On the domestic front, RBI has started with liquidity easing and the rationale for another 25 bps rate cut in April is compelling, she added.

While global uncertainties remain, India’s central bank appears to have room for policy flexibility. The Fed’s cautious stance and its impact on the US dollar, inflation, and capital flows will shape RBI’s next steps.

Analysts suggest that with improving liquidity conditions and stable economic growth, a rate cut by the RBI in April remains a strong possibility. Investors will closely watch how the RBI balances domestic growth objectives with global economic headwinds in the months ahead.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.