Daijiworld Media Network - Mumbai
Mumbai, Sep 15: The Reserve Bank of India (RBI) is likely to cut interest rates by 25 basis points in Q4 of calendar year 2025, according to a new report by HSBC Global Research, citing potential economic headwinds including slowing export orders and reduced government spending.
The report forecasts lower-than-expected inflation, supported by strong cereal production, ample food stocks, falling global oil prices, and cheaper imports from China. HSBC projects consumer inflation in September to range between 1% and 1.5%, significantly below the RBI’s Q3 forecast of 2.1%. The average inflation for the quarter is expected to be just 1.8%.
One exception to the disinflation trend is gold, which continues to exert upward pressure on core inflation. With gold prices rising 40% year-on-year, the metal alone added 43 basis points to the CPI in August, the report noted.
Despite this, core inflation (excluding food, fuel, housing, and gold) was recorded at 3.2% year-on-year, comfortably below the RBI's tolerance level.
Vegetables and fruits saw price spikes in August due to rain-induced supply disruptions, while cereals and pulses continued their downward trend. HSBC expects the recent GST rate cuts to ease price increases in personal care products in the coming months.
On the fiscal front, HSBC noted that government capital expenditure, which saw a 33% YoY growth between April and July, may moderate in the second half of FY26, aligning closer to the budgeted 10% growth rate.
The report flagged excess rainfall and flooding in north-western India, especially Punjab, as a risk to the inflation outlook.
In its broader economic commentary, HSBC maintained a neutral outlook on Indian equities, cautioning that earnings growth could slow to 8–9% in 2025, lower than the market consensus of 11%.
While five out of nine key risk factors for Indian markets are improving, HSBC emphasized that growth headwinds and inflation volatility remain key variables for policy direction in the coming quarters.