Banks, autos, and realty stocks in focus as RBI likely to deliver third straight rate cut
Rate-sensitive sectors such as banks, autos, and realty are expected to remain in focus on Friday, with the Reserve Bank of India (RBI) widely anticipated to announce a third consecutive interest rate cut. Easing inflation has created room for the central bank to prioritise economic growth.
A Reuters poll shows that 53 of 61 economists expect the
Monetary Policy Committee
(MPC) to cut the repo rate to 5.75%. Two respondents foresee a deeper 50 basis point cut, while six expect no change.
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This divergence stems from a shifting macroeconomic backdrop—retail inflation has fallen below the 4% mark, while the domestic growth outlook remains upbeat. However, factors such as global monetary policy trends, monsoon-related food inflation risks, and capital flow dynamics continue to weigh on the decision.
Debopam Chaudhuri, Chief Economist at Piramal Group, argues for a bold move, recommending a 50 bps cut. Speaking to ANI, he said, "The MPC should consider a larger-than-expected 50 basis point rate cut this time. Rate transmission has only started to gain momentum after the policy repo rate was reduced to 6% in April, as prior liquidity constraints had kept market yields high. A 50 bps cut at this juncture could compensate for lost time and provide a significant boost to economic growth."
He also emphasised the favourable timing, as the US Federal Reserve is anticipated to initiate policy easing soon. "With the US Fed likely to start cutting rates shortly, concerns about diminishing yield differentials between the US and India are expected to lessen. Lower borrowing costs would enhance domestic growth prospects and solidify India's attractiveness as an investment hub, irrespective of the US debt spread," he remarked.
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On the other hand, Sonal Badhan, Economics Specialist at
Bank of Baroda
, supports a more measured approach. "We anticipate the RBI will lower rates by 25 bps in this week's announcement. This expectation is grounded in the significant moderation of inflation, which is anticipated to remain manageable in the upcoming months. Additionally, with predictions of a normal monsoon, the pressure on food inflation should be limited," she told ANI.
Badhan expects the RBI to revise its FY26 inflation forecast downward by 10 bps due to better-than-expected Q1 data. However, she ruled out a 50 bps cut. "We consider a 50 bps cut unlikely as the June rate cut is seen as a front-loading measure. The RBI will also exercise caution until it has a clear understanding of the monsoon's spatial distribution. Furthermore, with the US Fed likely to remain on hold until September 2025, narrowing interest spreads could influence foreign portfolio investment inflows and the Indian rupee. Therefore, a 25 bps cut seems more prudent," she clarified.
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Supporting the dovish stance, M. Govind Rao, member of the 14th Finance Commission and Chairman of the Karnataka Regional Imbalances Redressal Committee, said there is room for further easing. "The inflation rate is comfortably within the target range, providing sufficient scope for a rate reduction. Given the uncertainties posed by tariff hikes and global volatility, it is appropriate to lower interest rates to stimulate higher investment," he told ANI.
As the MPC wraps up its discussions on June 6, all attention will be directed towards the statement from Governor Sanjay Malhotra at 10 am. With inflation under control and a strong emphasis on investment-driven growth, the RBI is faced with the crucial task of balancing support for growth while ensuring financial stability.
(
Disclaimer
: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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