June RBI MPC expected to deliver third rate cut as inflation, growth ease

Business Standard

04-06-2025

The Reserve Bank of India (RBI) is widely expected to lower its benchmark interest rate for a third consecutive time following its Monetary Policy Committee (MPC) meeting on June 6, as the central bank continues its shift towards a more accommodative stance to support economic growth.
A Reuters poll conducted between May 19-28 shows a strong consensus among economists, with 53 out of 61 respondents expecting a 25 basis point (bps) cut in the repo rate to 5.75 per cent, while two projected a sharper 50 bps cut. The remaining six expect no change.
The central bank has already cut rates by 50 bps this year, 25 bps each in February and April, and shifted its stance to 'accommodative' at its last meeting, citing subdued inflation and declining growth momentum.
How much more will the RBI cut the repo rate?
SBI Research projects a total cut of 125 bps in FY26, including 75 bps across June and August, followed by 50 bps in the second half of FY26. The report argues that jumbo cuts of 50 bps could prove more effective than incremental reductions.
By August, over 80 per cent of economists in the Reuters poll expect the repo rate to reach 5.50 per cent, suggesting another quarter-point cut may follow soon after June.
Why RBI MPC is likely to cut repo rate again?
India's economic growth has slowed, with gross domestic product (GDP) expected to rise by 6.3 per cent in FY25. At the same time, inflation based on the Consumer Price Index (CPI) has eased to a multi-year low of 3.34 per cent in March and is likely to remain below the central bank's 4 per cent target. These factors give the MPC room to consider another reduction in the repo rate.
However, some economists caution that transmission remains uneven. Yes Bank's Indranil Pan noted that the February rate cut did little to ease borrowing costs due to tight liquidity, even as deposit rates declined.
While the RBI's policy is primarily shaped by domestic factors, global developments are increasingly influential. Central banks worldwide are shifting towards rate cuts amid slowing growth and rising geopolitical risks, with ongoing US-China trade tensions weighing on global demand and India's export outlook.
Domestically, the OECD warns a weak monsoon could dent rural incomes and stoke food inflation, potentially constraining further easing. Even so, the outlook remains stable: growth is seen holding at 6.3 per cent in FY26 and rising to 6.5 per cent in FY27. Investor sentiment is upbeat, with a Reuters poll predicting new stock market highs by year-end.
Overall, slowing growth, low inflation, and a global tilt towards easing strengthen the case for another rate cut, though the RBI is likely to proceed cautiously given the risks.
What else to watch out for during RBI MPC June meet?
While a 25 basis point cut in the repo rate to 5.75 per cent is widely anticipated, investors will also pay attention to the central bank's forward guidance for any hints of further easing in August or later. In addition, the RBI's inflation and growth projections will be announced for the ongoing financial year, as well as the central bank's assessment of potential monsoon-related risks to food prices. Measures to improve liquidity and address concerns over weak monetary transmission are also expected to be in focus.