New Delhi [India]: The ongoing weakness in the US dollar has created significant scope for the Reserve Bank of India (RBI) to implement further interest rate cuts—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 suggests that this trend is not limited to India alone. Other emerging market economies, such as Indonesia, are also expected to benefit from the softer dollar.
“US dollar weakness has created real room to cut rates for both Bank Indonesia and the Reserve Bank of India,” the report stated.
Inflation Trends Support Rate Cuts
India’s disinflationary trajectory has been clearly visible in recent data. Consumer Price Index (CPI) inflation averaged 4.6% during the last financial year and declined further to 3.2% in April 2025, marking the lowest level since July.
These figures have strengthened market expectations of more monetary easing by the RBI, especially under its new leadership.
Since Sanjay Malhotra took charge as RBI Governor in December 2024, replacing Shaktikanta Das, the central bank has already cut the repo rate by 50 basis points, signaling a dovish approach to monetary policy.
“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,” Jefferies noted.
RBI’s Inflation Outlook and Market Reaction
The RBI, in its latest Annual Report, projected average inflation around 4% for the current fiscal year, ending March 2026 (FY26). Meanwhile, Jefferies’ India division believes there is space for another 75 bps cut, should current macroeconomic and currency trends hold.
Such an easing trajectory could stimulate domestic growth, improve liquidity, and further boost investor sentiment in equity markets.
In its April 2025 Monetary Policy Committee (MPC) meeting, the RBI had already slashed the repo rate by 25 bps, bringing it down from 6.25% to 6%.