India’s inflation trajectory has become more pronounced. The April CPI print at 3.16%—a six-year low—has sharpened expectations that the repo rate cycle may bottom out closer to 5.00%, not the previously estimated 5.25%–5.50% range. With inflation for 2025–26 now tracking closer to 3.5%, the assumptions underlying the Reserve Bank of India’s real interest rate model begin to align with the case for a lower terminal rate.The RBI has consistently held that a 1.5% positive real rate is required to preserve macroeconomic and financial stability. If headline inflation averages 3.5%, a nominal policy rate of 5.0% would maintain this equilibrium. The logic is consistent with Monetary Policy Committee member Saugata Bhattacharya’s remarks in his April interview to BasisPoint, where he cited internal RBI models suggesting a terminal repo range between 5.10% and 5.70%. He emphasised a bias towards the lower end of that band, citing subdued inflation and weak external demand as justification for stronger countercyclical support.
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