RBI MPC: 25 bps rate cut on the cards? Here's all you need to know
The Reserve Bank of India (RBI) will begin its three-day monetary policy committee (MPC) meeting on June 4, with the policy decision expected to be announced on June 6. All eyes are on whether the central bank will cut the repo rate by 25 basis points (bps) for the third time in a row.There is growing belief among economists and market experts that the RBI will reduce the repo rate again, bringing it down further from the current 6%. The expectation comes as consumer price inflation has stayed below the RBI's target of 4% and economic growth has slowed, partly due to global uncertainties like recent trade actions in the US.TWO RATE CUTS ALREADY THIS YEARSo far in 2025, the RBI has already cut the repo rate twice, once in February and then in April, by 25 bps each time. These cuts brought the key lending rate down to 6%. Alongside the rate cuts, the RBI also changed its stance from 'neutral' to 'accommodative' in April, meaning it is now more open to supporting economic growth by easing rates further if needed.With the earlier rate cuts, several banks have lowered their lending rates, making loans cheaper for individuals and businesses. Many believe another cut this week will help support sectors like real estate and small businesses, which have been looking for relief.WHAT EXPERTS ARE SAYINGMadan Sabnavis, Chief Economist at Bank of Baroda, said that inflation has been low and the RBI has managed liquidity well, which makes room for another 25 bps cut. "The commentary on both growth and inflation will be important as there are expectations of revisions in their forecasts for both the parameters," he said.He also mentioned that the RBI is likely to offer more insights into how global developments—like the end of US tariff relief in July—could affect the Indian economy.Aditi Nayar, Chief Economist at ICRA, also expects more rate cuts to follow. She said, "A 25 bps rate cut is expected next week, followed by two more cuts over the subsequent two policy reviews, taking the repo rate to 5.25% by the end of the cycle."Manish Singhal, Secretary General of Assocham, agreed that the RBI should support the economy. "Though the INR is likely to come under depreciation pressure in the short term, especially if global interest rates remain high, its impact will depend on crude oil prices and other global factors," he said.IMPACT ON HOME LOANS AND HOUSINGIf the RBI cuts the rate again, it is expected to give a boost to the real estate sector. Pradeep Aggarwal, founder and chairman of Signature Global, said that homebuyers could benefit from another rate cut. 'It would act as a catalyst for increased housing demand across segments. As a result, both first-time homebuyers and investors are likely to be encouraged to enter the real estate market,' he said.Ashok Kapur, Chairman of Krishna Group and Krisumi Corporation, echoed this view. 'The real estate sector in particular stands to benefit from a reduction in policy rates, as it makes home loans affordable for buyers. A boost to real estate demand will also help sectors like cement, steel, and construction equipment, driving economic momentum,' he said.INFLATION UNDER CONTROLOne of the main reasons experts expect another cut is because inflation is under control. Retail inflation in April 2025 fell to 3.16%—the lowest year-on-year level since July 2019. The RBI has been tasked with keeping inflation at 4%, with a range of 2% on either side. So, the current level is well within target.The RBI's annual report, released last week, confirmed that the central bank will continue managing liquidity to support productive sectors of the economy. It also said the RBI will adjust its approach depending on how inflation and growth trends develop.BOND YIELDS AND MARKET REACTIONA recent article in the RBI's May Bulletin said that domestic bond yields have come down to multi-year lows. This is partly due to the back-to-back rate cuts and liquidity-boosting measures taken by the RBI. The report added that both credit and monetary conditions are in line with the central bank's plan to support the economy while keeping inflation under check.India's GDP growth is estimated to have dropped to 6.5% in FY25, the lowest in four years. A lower interest rate can help push demand in the economy and encourage investments.
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