After remaining on the sidelines through 2024, the Reserve Bank of India (RBI) has pivoted sharply in 2025, cutting policy rates by 25 basis points in February and April 2025 and 50 basis points in June, 2025.
Unlike many economies that began rate cuts in 2024, India kept its policy rate at 6.5 per cent throughout last year. This changed in 2025, when India cut the policy rate by –25 bps in Q1 and –75 bps in Q2, bringing the rate down to 5.50 per cent, after the cut on June 6, 2025. This made India one of the more active movers in recent quarters, catching up with other Emerging Market Economies and Advanced Economies that began easing earlier.
Advanced Economies (AEs) led with larger rate cuts in 2024
Advanced economies began their rate-cutting cycles earlier and with more consistency compared to most EMEs. Throughout 2024, they implemented deeper cumulative cuts, reflecting a front-loading approach to monetary easing. The euro area led the pack with cuts in every quarter of 2024 and 2025, totalling –235 bps, including its sharpest move of –60 bps in Q3 2024. The European Central Banks cut rates continuously to revive a weak economy and to bring inflation back to its 2 percent target.
Canada and New Zealand also eased aggressively, each slashing rates by –225 bps in this cycle, while Denmark followed closely with –200 bps.
Meanwhile, Australia stood out among AEs with only –50 bps of easing. Countries like the U.S., the U.K., and South Korea adopted a more measured pace, each cutting –100 bps.
Emerging Markets Shift Focus in 2025
In contrast to the Advanced Economies, most Emerging Market Economies (EMEs) were slower to begin easing and delivered smaller cumulative cuts through 2024. Even the more proactive EMEs, such as Mexico (–250 bps) and Chile (–225 bps), began easing in the second half of 2024, with a large portion of their rate cuts concentrated in Q4 2024 and early 2025.
Countries which had higher policy rates towards the beginning of the rate-cut cycle such as Mexico (11 per cent towards the end of March, 2024) and Chile (7.3 per cent) seem to have made larger cuts. South Africa (8.3 per cent) was the exception.
Anindiya Banerjee, Senior Vice President, Kotak securities observed that when there is substantial inflation and currency volatility, as seen in Latin American economies, central banks need to maintain higher policy rates as a compensation for risk premium. “From 2020 onwards, while many central banks in North America and Europe pursued highly accommodative measures and faced challenges in controlling inflation, India adopted a more mature monetary policy stance. The Reserve Bank of India avoided aggressive rate cuts and implemented liquidity support in a prudent and targeted manner”, he added.
At the same time, Brazil stood apart with a sharp tightening cycle, hiking its policy rate by +400 basis points over five quarters, including a steep +200 bps hike in Q1 of 2025. This aggressive tightening was driven by high inflation, rising food and service costs, and the need to curb price pressures amid global uncertainty and strong domestic demand.
According to Hitesh Jain, Strategist, Institutional Equities Research, YES SECURITIES, “Advanced economies cut rates early due to inflation easing and slowdown risks. Emerging markets like India and Brazil maintained higher rates to manage risks. RBI’s front-loaded cuts aim to boost growth while keeping real rates positive. Future easing depends on growth recovery and inflation stability.”
Published on June 9, 2025
