New Delhi: The Reserve Bank of India (RBI) is likely to cut the repo rate by a full percentage point—from 6 percent to 5 percent—by the end of 2025, according to a report from global brokerage firm Nomura.

In its 'Asia H2 Outlook' report, Nomura noted an underperformance of both the gross domestic product growth (at 6.2 percent compared to the RBI's projection of 6.5 percent) and inflation (3.3 percent compared to the RBI's target of 4 percent).

Nomura stated this underperformance is the basis for expecting the RBI to implement further policy rate cuts, including the repo rate.

Ahead of the RBI’s repo rate decision scheduled for Friday, Nomura anticipates repo rate reductions of 25 basis points each in June, August, October, and December 2025.

Nomura also sees India sticking to prudent fiscal practices. "We expect the government to stick to fiscal prudence, while monetary policy does the heavy lifting," it said in the note.

It expects the RBI to have more flexibility on the topside in foreign exchange, especially when it comes to USD/INR. "The RBI is likely to accumulate reserves on a softer US dollar, capping the Indian rupee appreciation," Nomura said.

The RBI’s Monetary Policy Committee (MPC) is set to meet from June 4-6. Analysts expect the Central Bank to go for a third consecutive rate cut of 25 basis points as inflation continues to remain below the median target of 4 percent.

The Reserve Bank has said it will continue to undertake liquidity management operations in sync with the monetary policy stance to keep system liquidity adequate to meet the productive requirements of the economy.

A benign inflation outlook and moderate growth warrant a monetary policy to be growth-supportive while remaining watchful about the rapidly evolving global macroeconomic conditions, said the Central Bank in its ‘2024-25 annual report’.

Notably, the RBI MPC, in its April meeting, unanimously voted to reduce the policy repo rate by 25 bps to 6 percent.

IANS