New Delhi: The weakness of the US dollar has provided the Reserve Bank of India (RBI) with substantial scope to lower interest rates by up to 75 basis points by the end of calendar year 2025, according to a study by global financial services firm Jefferies.
The research emphasised that comparable patterns exist in other developing economies as well. Besides India, Bank Indonesia also has leeway to lower rates more due to the weakening of the US dollar.
According to it, the depreciation of the US dollar has opened actual opportunity for both Bank Indonesia and the Reserve Bank of India to lower interest rates.
In India, the disinflationary tendency is becoming more noticeable. Consumer price inflation averaged 4. 6 percent in the last fiscal year, but declined to 3. 2 percent in April this year, the lowest level since July.
This reduction in inflation has fueled expectations of additional monetary easing by the central bank.
Jefferies claims that the RBI has already reduced the repo rate by 50 basis points since Sanjay Malhotra took over as the new Governor in December, succeeding Shaktikanta Das.
Malhotra's approach is seen as more cautious, with the market interpreting the inflation trend as favorable for equities due to the increased likelihood of interest rate reductions under his administration.
It stated that the same disinflationary trend is becoming more apparent in India, however it is now viewed as favorable for equities in terms of the possibilities for RBI rate cuts under the more dovish RBI Governor Sanjay Malhotra.
In its most recent Annual Report, the RBI forecasts average inflation of about 4% for the current fiscal year, which ends in March 2026 (FY26).
However, Jefferies' India branch predicts that an additional 75 basis points of rate decreases are possible by the end of 2025, if the current economic and currency conditions continue.
This view, backed by decreasing inflation and global exchange trends, might stimulate internal growth and improve the investment climate in the nation.
The Reserve Bank of India (RBI) announced a 25 basis point (bps) reduction in the repo rate at the April Monetary Policy Committee (MPC) meeting, bringing it down from 6. 25 percent to 6 percent.
