Swiss investment bank UBS has projected a potential rate cut by the Reserve Bank of India (RBI) in April 2025, citing easing inflation and favorable liquidity conditions. India’s Consumer Price Index (CPI) inflation dropped to 3.6% in February, marking a seven-month low, primarily driven by a decline in food prices. UBS anticipates a total 50-basis-point rate cut in 2025 to support economic growth amid global uncertainties, including shifting US trade policies and potential reciprocal tariffs.
Swiss investment bank UBS, a global financial services firm specializing in investment banking, asset management, and wealth management, has predicted a potential rate cut by the Reserve Bank of India (RBI) in April 2025. This projection is based on the recent decline in India’s inflation rate and improved liquidity conditions.
Inflation Falls to a Seven-Month Low
India’s Consumer Price Index (CPI) inflation eased to 3.6% year-on-year (Y-o-Y) in February, marking the lowest level since July 2024, according to government data released on March 13, 2025. The decline was mainly due to a sharp drop in food prices, especially vegetables, which recorded an 11% month-on-month decrease. The latest inflation figure came in below market expectations of 4%, significantly lower than January’s 4.3%.
UBS analysts expect this trend to continue, predicting that inflation in the March quarter will be 3.9%, 50 basis points (bps) lower than the RBI’s 4.4% projection. The firm also forecasts that headline inflation will average 4.2% in the financial year 2025-26 (FY26), down from 4.7% in FY25.
Easing Inflation Creates Scope for RBI Rate Cuts
With inflation moderating, UBS believes there is scope for monetary easing. The bank maintains its projection of a 50-bps reduction in the repo rate in 2025, with the first cut likely in April. This move would align with the RBI’s efforts to ensure liquidity support while allowing flexibility in the currency market.
UBS also noted that with the financial year-end approaching in March, a seasonal rise in the liquidity deficit is expected. To counter this, the RBI may introduce measures to support the banking system, making an interest rate cut even more feasible.
Rising Core Inflation Not a Major Concern
Despite the overall decline in inflation, core inflation (excluding food and fuel) rose slightly to 4% Y-o-Y in February, up from 3.7% in January. This increase was driven by higher gold prices and a marginal rise in core services inflation, particularly in personal care, housing, and healthcare.
However, UBS does not see core inflation as a major hurdle for rate cuts. The firm argues that as long as headline inflation remains controlled and economic growth stays on track, the RBI will prioritize monetary easing to support the ongoing recovery.
Global Uncertainties and Their Impact on India
UBS highlighted that global uncertainties, particularly shifting US trade policies and the potential imposition of reciprocal tariffs on Indian exports, could pose risks to India’s economy. In this context, an accommodative monetary policy, including rate cuts, liquidity support, and regulatory easing, could help sustain India’s domestic growth momentum.
The RBI’s next Monetary Policy Committee (MPC) meeting is scheduled for April 5-7, 2025, where a decision on interest rates is expected.
