US Dollar Weakness Sets Stage for RBI Rate Cuts

The ongoing weakening of the US dollar is carving out a significant opportunity for the Reserve Bank of India (RBI) to further lower interest rates by as much as 75 basis points by the close of 2025, as per a Jefferies report. This global financial services firm notes that similar trends are apparent in other emerging markets.

Alongside India, Bank Indonesia is also in a position to reduce rates due to the softening US dollar. The report underscores, 'US dollar weakness has created real room to cut rates for both Bank Indonesia and the RBI.' In India, a visible downturn in inflation has generated expectations for additional monetary easing by the Reserve Bank.

Since Sanjay Malhotra assumed the role of RBI Governor in December, succeeding Shaktikanta Das, the central bank has already reduced the repo rate by 50 basis points. Malhotra's dovish stance is interpreted by markets as conducive to equities, given the potential for additional rate cuts. Jefferies highlights this positive trend, predicting consumer inflation to be approximately 4% for the current financial year ending in March 2026.

(With inputs from agencies.)