RBI MPC begins, all eyes on 3rd rate cut as inflation stays benign
The Reserve Bank of India’s Monetary Policy Committee (MPC) meeting kicked off on Wednesday to decide on the repo rate cut
Published on Jun 4, 2025
By IANS
- NEW DELHI — The Reserve Bank of India’s Monetary Policy Committee (MPC)
meeting kicked off on Wednesday to decide on the repo rate cut and according to
economists and industry experts, the Central Bank is likely to go for a third
25 bps cut in the repo rate to 5.75 per cent.
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- 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.
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- 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 worsening global macroeconomic conditions.
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- The RBI’s dovish turn is primarily driven by two
macroeconomic indicators: benign inflation and signs of cyclical slowdown.
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- Headline CPI inflation remains consistently below the
RBI’s medium-term target of 4 per cent, while GDP growth appears to be
softening due to external shocks such as trade disruptions from recent US
policy moves.
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- 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–6.3 per cent range.
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- “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.
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- With inflation expectations anchored, growth momentum
moderating, and external vulnerabilities persisting, the environment is
becoming more favourable for another rate cut.
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- While the final decision will depend on evolving global
conditions, especially from advanced economies — market consensus is
strengthening around the likelihood of a third rate cut to help sustain India’s
growth path, said the report.
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- A new SBI report has even projected a mega 50-basis point
rate cut in June’s RBI MPC policy.
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- “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.
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- 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.
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- 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.
