Bank of America Forecasts a 100 bps Rate Cut in India by March 2026

With inflation hitting 4% and factoring in the real rate assumption, the repo rate might climb to 5.50%,” Vikas Jain, the bank’s head of fixed income, currencies, and commodities, stated in a Tuesday interview. “Core inflation has been steadily showing lower figures.

A Bank of America, India fixed income official stated that the central bank might lower interest rates by 100 basis points in a monetary easing phase projected to start in December, as inflation trends towards its 4% goal.

According to Jain, the rate easing cycle in Asia's third-largest economy is likely to begin with a 25-basis-point cut in December, reflecting the market consensus.

However, his anticipated 100 basis points of rate cuts through March 2026 is more significant than the consensus estimate of 50-75 basis points.

The central bank is expected to maintain the benchmark repo rate at 6.50% for the ninth consecutive meeting this week.

He maintains a positive outlook on overnight index swaps due to elevated one-year and two-year rates, and a yield curve pricing in conservative rate cuts. Jain also suggests the central bank might use FX forwards to manage liquidity, given the temporary nature of India's banking liquidity surplus.

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