The Reserve Bank of India (RBI) is expected to reduce policy rates by 25 basis points in Q4 CY2025, as slowing exports and reduced government spending are projected to weigh on growth, according to a report by HSBC Global Research.
The report noted that benign inflation conditions are giving the central bank more room to ease. Strong cereal production, lower crude oil prices, abundant grain stocks, and cheaper Chinese exports are helping keep price pressures subdued. HSBC estimated average inflation for the current quarter at 1.8%, below the RBI’s forecast of 2.1%, with September CPI projected between 1% and 1.5%.
Despite the broader cooling trend, rising gold prices—up 40% year-on-year—added 43 basis points to CPI in August, keeping core inflation somewhat elevated. Meanwhile, vegetable and fruit prices spiked due to rain-induced supply disruptions, though cereals and pulses continued to decline.
Excluding food, fuel, housing, and gold, core inflation stood at 3.2% year-on-year, well below the RBI’s comfort zone. HSBC also pointed out that the recent GST rate cuts are expected to soften prices in personal care items over the coming months.
The report, however, flagged concerns about excessive rains and flooding in north-western India, particularly Punjab, which could disrupt agricultural output.
On the fiscal side, government capital expenditure, which surged 33% year-on-year between April and July, may slow in the second half of FY26 to align with the budgeted growth of around 10%.
In equities, HSBC maintained a “neutral” stance, noting that while five of nine risk factors are improving, earnings growth is likely to moderate to 8–9% in 2025, compared to the consensus expectation of 11%.
