RBI May Cut Interest Rates by 25 Basis Points in Q4 2025: Report

The Reserve Bank of India (RBI) may reduce interest rates by 25 basis points in the fourth quarter of 2025 (October–December), according to a recent report. The expected rate cut comes amid declining export orders and slowing economic growth, largely driven by reduced government spending. HSBC Global Research notes that inflationary pressures remain subdued due to several supportive factors. Strong grain production, adequate reserves, lower global oil prices, and cheaper exports from China are all contributing to sustained low inflation. The report states that average inflation for the current quarter is at 1.8 percent, below the RBI's forecast of 2.1 percent. Moreover, consumer price index (CPI)-based inflation is projected to range between 1 percent and 1.5 percent in September.

However, gold prices continue to exert upward pressure on overall inflation. In August, gold prices surged by 40 percent year-on-year, significantly impacting the CPI. Meanwhile, vegetable and fruit prices spiked due to rainfall-related supply constraints, though cereals and pulses saw price declines.
Core inflation excluding food, fuel, housing, and gold, stood at 3.2 percent year-on-year, well below the RBI’s target.

Government capital expenditure had shown strong growth of 33 percent year-on-year during April to July. However, the report warns this pace could slow down in the second half of FY2026, potentially dropping to just 10 percent annual growth. Ongoing challenges such as extreme rainfall and floods, especially in northwestern states like Punjab, remain a concern.

Despite these economic headwinds, HSBC maintains a neutral stance on Indian equities. The firm also notes that five out of nine key market risk factors are showing improvement.