The RBI monetary policy committee (MPC) is expected to lower the repo rate by 25bp this week, taking cumulative cuts to 75bp in this cycle, banking on soft inflation, while growth is expected to ease below 7% this year. Soft food costs and benign core-core inflation (core ex precious metals) are likely to keep 2Q25 inflation close to ~3%, tracking our full-year forecast at 3.8%, below the central bank’s target. Besides shifting to a dovish policy stance, the central bank has also maintained an accommodative liquidity policy, which has pushed overnight rates to below the repo rate, acting as a de facto cut. The rate cut cycle is fairly priced in at this juncture, with any stark downward revision in inflation likely to build in further easing. Beyond this week’s likely reduction, we expect the focus to shift towards policy transmission, narrowing the room for aggressive cuts here on. Our base call is for the RBI to undertake 50bp more cuts (including June’s move) in second half of 2025, taking the terminal rate to 5.5%.
Real GDP growth posted a strong 7.4% yoy in 1Q25 (4QFY25) vs our forecast at 7% and consensus at 6.8%. This marked an increase from an upwardly revised 6.4% quarter before and took FY25 average to 6.5%, in line with our projection. As we noted in Growth and monsoon watch, the headline real GDP received an one-off boost from net indirect taxes (a sharp fall in subsidy payments) which widened the wedge between the GDP and GVA gauges. The supply measure GVA which rose 6.8% in 3QFY from 3QFY’s 6.5% provided a better handle on the underlying growth impulse. A catch-up in public investments (fixed asset investments rose 9.4% yoy vs 5.2% in 3QFY), firmer farm output, tailwind to rural demand, and contribution from net exports (on lower imports) were key support areas, whilst urban demand softened besides lacklustre private capex. In the year ahead, consumption is likely to receive a hand from easing inflation and flush liquidity conditions, a timely monsoon and income tax cuts. Other engines of growth are likely to moderate, in midst of a weak credit impulse, modest budgeted increase in centre’s fiscal spending and global uncertainties impacting exports and the private sector capex cycle (India: Trade thaw, agreements and tailwinds). 
Topic
Explore more
E & S Macro StrategyGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.