The Reserve Bank of India's Monetary Policy Committee (MPC) meeting commenced on Wednesday to decide on the repo rate cut and according to economists and industry experts, the Central Bank is likely to opt for a third 25 bps cut in the repo rate to 5.75 per cent.
Chaired by RBI Governor Sanjay Malhotra, the committee's decision will be announced on June 6. The Reserve Bank has already reduced the repo rate by 50 basis points in the previous two monetary policy reviews, lowering it to 6 per cent.
Market participants are now watching closely for signs of a potential third rate cut, as expectations build for further monetary support to boost domestic growth amid deteriorating global macroeconomic conditions.
The RBI's dovish turn is primarily driven by two macroeconomic indicators: benign inflation and signs of cyclical slowdown.
Headline CPI inflation remains consistently below the RBI's medium-term target of 4 per cent, whilst GDP growth appears to be softening due to external shocks such as trade disruptions from recent US policy moves.
Several rating agencies and global institutions have downgraded India's GDP growth projections for FY26. Although the RBI maintained its 6.5 per cent growth estimate in April, others have revised expectations to a 6.0 per cent&ndash;6.3 per cent range.
"The MPC has clearly shifted from a neutral to an accommodative stance, indicating the RBI's intent to inject liquidity and support growth. This pivot is reinforced by April's CPI inflation easing to 3.2 per cent, the lowest since July 2019 and staying well within the RBI's comfort zone," said Bajaj Broking Research.
With inflation expectations anchored, growth momentum moderating, and external vulnerabilities persisting, the environment is becoming more favourable for another rate cut.
Whilst the final decision will depend on evolving global conditions, especially from advanced economies &mdash; market consensus is strengthening around the likelihood of a third rate cut to help sustain India's growth path, said the report.
A new SBI report has even projected a mega 50-basis point rate cut in June's RBI MPC policy.
"Domestic liquidity and financial stability concerns have receded. Inflation is expected to stay within the tolerance band. Keeping the domestic growth momentum intact should be the main policy focus and provide the justification for a jumbo rate cut," according to Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
With liquidity in an extended surplus mode, liabilities are getting repriced faster in the current rate-easing cycle. Banks have already reduced interest rates on savings accounts to the floor rate of 2.70 per cent.
Also, fixed deposit (FDs) rates have been reduced in the range of 30-70 bps since February 2025. Transmission to deposit rates is expected to be strong in the coming quarters, said the SBI report.
---IANS

Central bank expected to reduce repo rate by 25 bps to 5.75% amid benign inflation trends

RBI MPC Eyes Third Rate Cut to Support Growth

Central bank expected to reduce repo rate by 25 bps to 5.75% amid benign inflation trends

June 4, 2025 | 15:39 IST