The Reserve Bank of India (RBI) is likely to reduce policy rates by 25 basis points (bps) in the fourth quarter of calendar year 2025 as inflation remains benign, according to a report by HSBC Global Research.

The report said that weakening export orders and slower government spending could weigh on growth, creating room for the central bank to ease monetary policy.

HSBC projected average inflation for the current quarter at 1.8 per cent, below the RBI’s forecast of 2.1 per cent. Consumer price inflation in September is expected to remain between 1 per cent and 1.5 per cent.

A key driver of lower inflation has been robust cereal production, healthy buffer stocks, softening global oil prices, and cheaper Chinese exports. However, surging gold prices, up nearly 40 per cent year-on-year, have added about 43 basis points to the Consumer Price Index (CPI) in August, keeping core inflation slightly elevated.

The brokerage noted that recent GST rate cuts will likely ease price pressures on personal care items, while vegetable and fruit prices saw a temporary rise due to rain-related supply disruptions. Excluding food, fuel, housing, and gold, core inflation stood at 3.2 per cent year-on-year, well below the RBI’s 4 per cent target.

On the fiscal front, government capital expenditure grew 33 per cent year-on-year in April–July but is expected to slow in the second half of FY26 to align with the budgeted 10 per cent growth.

HSBC also revised down its earnings growth outlook for Indian companies, projecting moderation to 8–9 per cent in 2025, compared with a consensus estimate of 11 per cent.