RBI Could Cut Repo Rate by 25 Basis Points in Q4 if Weak Growth Persists: HSBC Report
New Delhi, August 13 (TheTrendingPeople.com) – The Reserve Bank of India (RBI) could announce a 25 basis point (bps) rate cut in the fourth quarter of 2025 if current moderate growth trends and easing inflation data continue, according to a new report by HSBC Global Investment Research.
The repo rate, currently at 5.50%, was left unchanged during the RBI’s August policy meeting after a series of rate reductions earlier this year. HSBC’s latest projection suggests that a rate cut could bring the benchmark lending rate down to 5.25% before the year ends.
Timeline of Developments
August 7, 2025 – RBI holds its policy rate steady at 5.50% during the Monetary Policy Committee (MPC) meeting, citing a need to monitor inflationary pressures despite an easing trend.
June 2025 – High-frequency economic indicators begin to show slower-than-expected activity, with muted momentum in manufacturing and services sectors.
July 2025 – Inflation data reveals a 1.6% year-on-year increase, an eight-year low. The fall was driven by declining energy prices and a slowdown in core inflation.
August 13, 2025 – HSBC Global Investment Research releases its report forecasting a possible 25 bps rate cut in Q4 if weak data persists.
Why the Report Matters
A potential rate cut by the RBI could have significant implications for India’s economic outlook, borrowing costs, and investment climate. Lower interest rates typically stimulate borrowing by businesses and consumers, which can boost economic activity. However, it can also risk stoking inflation if demand rises too quickly.
Given the current backdrop of subdued inflation and slowing growth, a rate cut could serve as a targeted measure to stimulate the economy without jeopardizing price stability.
Insights from the HSBC Report
The HSBC analysis notes that high-frequency activity indicators — such as industrial output, services sector growth, and credit demand — have shown weakness in recent months. If this trend continues, the RBI might be compelled to revise its growth forecast downward.
“If high-frequency activity indicators stay weak in the coming months, the RBI is likely to lower its growth forecast. A 25 bps repo rate cut is expected in Q4, bringing the repo rate to 5.25%,” the HSBC report states.
The report further highlights that Consumer Price Index (CPI) inflation is projected to average 3.2% in FY26, aided by a favourable base effect, healthy food supply, and lower commodity prices.
Inflation Trends and Price Dynamics
The latest inflation figures indicate a mixed picture:
- Headline inflation, excluding vegetables, eased to 3.6% from 3.8% in the previous month.
- Food prices moved out of a six-month deflationary trend, rising 0.2%.
- Vegetable prices, which had been declining, rose faster than anticipated in July, surprising analysts.
- Energy prices fell sharply by 0.7% month-on-month, driven by lower electricity and LPG costs.
According to the report, falling prices of pulses, sugar, and fruits helped offset rising costs of edible oils, eggs, meat, fish, and vegetables.
Eyewitness Views from the Financial Sector
Market participants are watching the RBI’s next moves closely.
Rajesh Mehra, a Mumbai-based bond trader, told TheTrendingPeople.com:
“The eight-year-low inflation print has given the RBI room to manoeuvre. If growth numbers don’t pick up, I expect the central bank to cut rates by December.”
Economist Dr. Ananya Rao noted:
“The challenge for the RBI will be to support growth without encouraging excess consumption. But given current conditions, a cautious 25 bps cut makes sense.”
National and Local Impact
For borrowers – A 25 bps cut could mean slightly lower home, auto, and personal loan EMIs, offering relief to households.
For businesses – Reduced lending rates could encourage capital investment, particularly in manufacturing and infrastructure sectors.
For savers – Deposit interest rates may see a marginal dip, affecting retirees and those dependent on fixed income returns.
Locally, the cut could boost consumer spending in sectors like housing, automobiles, and retail, particularly in urban centres where credit uptake is higher.
Background: RBI’s Monetary Policy Approach
The RBI uses the repo rate — the rate at which it lends to commercial banks — as a key tool to manage inflation and stimulate growth. Over the past year, the central bank has balanced its approach amid volatile global commodity prices, geopolitical tensions, and shifting domestic demand patterns.
With inflation now at multi-year lows and growth indicators softening, the RBI could shift towards an accommodative stance to spur the economy.
Final Thoughts from TheTrendingPeople.com
India’s economy stands at a crossroads. With inflation under control but growth momentum faltering, the RBI’s next policy moves will be crucial in shaping the economic landscape for the remainder of FY26. The possibility of a 25 basis point rate cut in Q4 reflects a cautious optimism — an attempt to revive growth without fuelling runaway prices.
All eyes will be on upcoming economic data and the RBI’s next MPC meeting to see if these forecasts turn into policy action.