Julius Baer's Unmesh Kulkarni Predicts 50 Basis Points Repo Rate Cut in CY25

Unmesh Kulkarni, Chief Economist at Julius Baer, has forecasted that India’s Monetary Policy Committee (MPC) will likely reduce the repo rate by 50 basis points in calendar year 2025. This prediction comes as the central bank navigates evolving economic conditions, including inflation trends and growth prospects.

Reasoning Behind the Rate Cut Expectation

Kulkarni cited a combination of factors that could prompt the MPC to adopt a more accommodative stance in the coming year. These include signs of moderating inflation and a need to stimulate economic activity amidst global economic uncertainties. He believes that a rate cut could help support consumption and investment, which are crucial to sustaining growth in the country.

"Inflation has shown signs of easing, and with the global economy facing headwinds, the RBI may opt for a rate cut to provide additional support to domestic growth," Kulkarni explained.

Current Economic Landscape

India’s economic recovery remains resilient despite challenges such as supply chain disruptions and geopolitical risks. The Reserve Bank of India (RBI) has previously raised interest rates to combat inflation, but with price pressures easing, a shift toward easing monetary policy may be on the horizon.

Impact on Financial Markets and Borrowing

A potential reduction in the repo rate would have significant implications for both financial markets and consumers. A lower rate could make borrowing cheaper, benefiting businesses and households. It may also provide a boost to the equity markets as investors adjust to more favorable liquidity conditions.

As the year progresses, all eyes will be on the RBI’s upcoming policy meetings, as any changes to the repo rate will be closely scrutinized for their impact on the broader economy