US dollar weakness opens door for RBI to further cut repo rates by 75bps in 2025: Jefferies
New Delhi: The weakness in the US dollar has created real room for the Reserve Bank of India (RBI) to lower interest rates further by up to 75 basis points (bps) by the end of calendar year 2025, according to a report by global financial services firm Jefferies.
The report highlighted that similar trends are visible in other emerging markets as well. Alongside India, Bank Indonesia also has room to ease rates further, thanks to the softening of the US dollar.
It stated, "US dollar weakness has created real room to cut rates for both Bank Indonesia and the Reserve Bank of India".
For India, the disinflationary trend has become increasingly visible. Consumer price inflation averaged 4.6 per cent in the last financial year and dropped to just 3.2 per cent in April this year, the lowest since July.
This fall in inflation has increased expectations of further monetary easing by the central bank.
Jefferies says that since Sanjay Malhotra took charge as the new RBI Governor in December, replacing Shaktikanta Das, the central bank has already cut the repo rate by 50 basis points.
Malhotra's approach is seen as more dovish, with the market interpreting the inflation trend as positive for equities due to the greater potential for rate cuts under his leadership.
It said "The same disinflationary trend is increasingly evident in India, though for now it is interpreted as bullish for equities in terms of the potential for RBI rate cuts under the more dovish RBI Governor Sanjay Malhotra".
In its latest Annual Report, RBI projected average inflation of around 4 per cent for the ongoing financial year, which ends in March 2026 (FY26).
However, Jefferies' India office believes there is room for an additional 75 basis points of rate cuts by the end of 2025, assuming the current economic and currency conditions persist.
This outlook, supported by easing inflation and global currency trends, could boost domestic growth and improve the investment climate in the country.
The Reserve Bank of India (RBI) in the April Monetary Policy Committee (MPC) meeting had announced a 25-basis-point (bps) cut in the repo rate, reducing it from 6.25 per cent to 6 per cent.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Times of Oman
7 hours ago
- Times of Oman
India grants Saudi PIF more flexibility in equity markets
New Delhi — India has agreed to exempt the Saudi sovereign wealth fund from key foreign portfolio investment (FPI) restrictions, according to two sources familiar with the development. The decision aims to facilitate greater capital flows into India by allowing Saudi Arabia's Public Investment Fund (PIF) and its affiliated entities to invest more flexibly in Indian equities. Current Indian regulations cap total investment from sovereign-related entities at 10% in a single company—regardless of whether investments come from separate arms of the same fund. 'This restriction has previously limited the PIF's ability to channel capital into India's high-growth sectors,' said one of the sources, who requested anonymity due to the sensitivity of the matter. The exemption, which comes after Indian Prime Minister Narendra Modi's high-profile visit to the Gulf nation in April, is seen as a strategic step to unlock Saudi capital. The two nations have been working to strengthen cooperation in critical sectors such as energy, infrastructure, and pharmaceuticals. During the visit, both sides reaffirmed their commitment to finalizing a bilateral investment treaty (BIT) and enhancing cross-border economic engagement. Saudi Arabia's PIF—one of the world's largest sovereign wealth funds with assets estimated at $925 billion—currently holds $1.5 billion in India's Jio Platforms and $1.3 billion in Reliance Retail. Analysts believe the exemption will pave the way for broader and deeper investments across India's fast-growing sectors. India, the third-largest oil importer globally, has been actively courting long-term capital from Gulf states to fund its infrastructure push. Simultaneously, Saudi Arabia has been seeking strategic investment opportunities in emerging markets as part of its ambitious Vision 2030 diversification strategy. To this end, the two countries formed a high-level task force in 2024 to accelerate Riyadh's plan to invest $100 billion in India. Progress on key issues such as taxation has been lauded by both governments as a breakthrough. 'The progress made by this Task Force in areas such as taxation was also a major breakthrough for greater cooperation in the future,' a joint statement issued in April said. Recent media reports suggest India is also considering tax relief measures for the PIF to further incentivize investment in infrastructure and energy projects.
Times of Oman
10 hours ago
- Times of Oman
'Process reforms' vital in India's GDP growth rate of 6-7%: Sanjeev Sanyal
Bengaluru: Economist Sanjeev Sanyal has said that India's economic growth rate of 6 to 7 per cent is a result of many "process reforms" undertaken that are not part of the headlines. India continues to be among the fastest-growing major economies and is expected to maintain this momentum over the coming years, according to global agencies. Speaking in Bengaluru at a seminar titled 'Reforms: Way To Vikasit Bharath,' Sanyal, who is member of EAC-PM, said "process reforms are an important part of reforms". "These are not reforms that you hear about in the headlines or in newspapers; unless you happen to be from that little sector, you probably don't know anything about it. And yet it is the accumulation of these hundreds of small reforms," he said. "The 6.5-7 per cent GDP growth rate we are now seeing is driven at least in part by the efficiencies we get from this kind of reform," Sanyal said, highlighting the importance of micro-reforms. He said that the government has removed hundreds of outdated colonial-era laws. "My late colleague Vivek Debroy was much into that. He was instrumental in removing hundreds of outdated, ridiculous laws. We've got four major maritime laws which go back more than 100 years, which I have worked to change," he said. Sanyal said that reforms can be challenging and may not be popular with people but have a positive impact on economic growth. "Laws are changing. These reforms are happening. And this is very painful, excruciating work, as you can tell; each one of them will need data, and we need to argue with people. You have to be willing to be unpopular with a large number of people, but you have to persist with this," he said. "Yesterday, you got the data: the economy grew in the last quarter by 7.4 per cent and we are now by some margin the fastest-growing economy despite all the turbulence in the world. It's not happening just like that. There's a lot of work that goes on at the back to keep this economy running," Sanyal added. He noted that while small reforms often go unappreciated, their cumulative impact has significantly improved systemic efficiency. This, he added, is one of the key drivers behind the current 6.5-7 per cent GDP growth rate. According to the IMF's April edition of the World Economic Outlook, India's nominal GDP for fiscal year 2026 is expected to reach around USD 4.187 trillion. This is marginally more than Japan's likely GDP, which is estimated at USD 4.186 billion. Indian economy grew by 6.5 per cent in real terms in the recently concluded financial year 2024-25, Ministry of Statistics and Programme Implementation's official data showed on Friday.
Times of Oman
10 hours ago
- Times of Oman
Govt prioritising lower denomination notes and digital transactions: Sitharaman
New Delhi: Indian Union Finance Minister Nirmala Sitharaman said on Saturday that the priority of the government is to "make sure" that currency in circulation will be in "lower denominations" and spreading more awareness for "doing digital transfers." Answering a question on the future of Rs 500 currency, Sitharaman said, "We are making every effort to make sure that currency will be in the lower denominations, used much more than the higher, as the Rs 2000 is almost completely out of circulation, except for possibly 0.02, which is still lying outside. Others have given it to the banks." "We need to have more digital awareness built so that people see a benefit in doing digital transfers," the Union Finance Minister said at the 'National Commemorative Seminar on 60 Years of Pt Deendayal Upadhyaya Integral Humanism Lectures' in the national capital. In recent years, India has witnessed an unparalleled rise in digital transactions, marking a significant milestone in its journey towards becoming a cashless society. At the forefront of India's digital payment revolution is UPI with a record hit of 16.73 billion transactions in December 2024. In addition to this, Immediate Payment Service (IMPS) and FASTag have emerged as pivotal players, making financial transactions faster, more accessible, and secure. As of recent data from the National Payments Corporation of India (NPCI), UPI has set a new record by processing over 16.73 billion transactions, with a staggering transaction value of Rs 23.25 lakh crore. This is a notable jump from Rs 21.55 lakh crore in November. In 2024, UPI processed around 172 billion transactions, marking a 46 per cent increase from 117.64 billion in 2023. This rise underscores a broader cultural shift toward financial inclusivity, with UPI being a central pillar.
