The Reserve Bank of India (RBI) is expected to reduce benchmark rates by 50-75 basis points (bps) in 2025-26 to stimulate consumption and lower borrowing costs, according to the CRISIL India Outlook 2025 report.
The report suggests that lower interest rates will modestly support consumption, as they gradually affect other interest rates in the economy, thereby reducing borrowing costs.
In its February monetary policy, the RBI cut the repo rate by 25 bps—the first reduction in nearly five years—to boost the slowing economy. This followed 11 consecutive policy meetings where the repo rate was held at 6.50 per cent. The RBI had raised the repo rate by 250 bps from May 2022 to February 2023. Since April 2023, the rate has remained steady at 6.5 per cent to manage inflation and keep it within the medium-term target of 4 per cent.
On the growth front, the Crisil report indicates that in the next financial year, growth will be supported by the easing of monetary policy and government measures to promote private consumption. Additionally, the government’s budgeted 10.1 per cent increase in capital expenditure (capex) will provide further support.
The report also notes that growth will remain steady in FY26 compared to FY25, despite a lower fiscal impulse, as the government works to narrow the fiscal deficit to 4.4 per cent of GDP, down from the revised estimate of 4.8 per cent.
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Emerging Global Risks
The report highlights that emerging global risks continue to be key factors to monitor, as they pose a threat to exports and contribute to uncertainty, which could hinder a broad-based revival of private-sector investment.
The Indian economy bounced back in the December quarter, growing at 6.2 per cent, following a dip to a seven-quarter low of 5.6 per cent in the July-September period, according to data released on February 28.
The growth in Q3FY25 was primarily driven by the agriculture and services sectors. On the expenditure side, both private and government consumption saw an uptick, though capital formation remained relatively subdued at 5.7 per cent, compared to 5.8 per cent in the previous quarter.
This also impacts the full-year figures, with fixed capital formation slowing to 6 per cent from 9.8 per cent, while private consumption rose from 5.3 per cent in FY24 to 6.8 per cent in FY25.
The CRISIL report also anticipates further easing of inflation in FY26.
Rabi sowing has progressed well, up 1.5 per cent year-on-year as of February 4, which bodes well for food supplies in fiscal 2026, the report noted.
The decline in crude oil prices and other key commodities is expected to keep core inflation within the RBI’s target range. CRISIL Intelligence projects crude oil prices to average $70-75 per barrel in fiscal 2026, down from $78-83 per barrel in fiscal 2025.
