Economists divided on quantum of rate cut, 25 bps or 50 bps, ahead of RBI policy announcement
By Nikhil Dedha
New Delhi [India], June 4 (ANI): As the Reserve Bank of India's Monetary Policy Committee (MPC) begins its two-day meeting in Mumbai to deliberate on the key policy rates, economists are divided over the quantum of the rate cut that the central bank should undertake in its June 6 announcement.
While some economists argue for a more aggressive 50 basis point (bps) cut to reinvigorate growth, others are in favour of a cautious 25 bps reduction, citing macroeconomic stability and external risks.
The divergence in opinion stems from the evolving macroeconomic landscape, where retail inflation has moderated significantly, falling below the 4 per cent mark, and the outlook for domestic growth remains robust.
However, concerns over global monetary trends, monsoon impact on food prices, and capital flows continue to influence the policy calculus.
Debopam Chaudhuri, Chief Economist at Piramal Group, believes the RBI should go for a bold move by announcing a 50 bps cut.
Speaking to ANI, Chaudhuri said, 'The MPC should consider a larger-than-expected 50 basis point rate cut this time. Rate transmission gained traction only after the policy repo rate fell to 6 per cent in April, as earlier tight liquidity conditions had kept market yields elevated. A 50-bps cut now could help make up for that lost time and deliver a stronger boost to economic growth.'
He also pointed out that the timing is opportune, with the US Federal Reserve expected to begin easing its policy soon.
'With the US Fed likely to begin cutting rates soon, concerns about narrowing yield differentials between the US and India are likely to diminish. The reduction in borrowing costs would enhance domestic growth prospects and reinforce India's appeal as an investment destination, regardless of the spread with US debt,' he added.
On the other hand, Sonal Badhan, Economics Specialist at Bank of Baroda, supports a more conservative 25 bps cut.
'We expect the RBI to lower rates by 25bps this week. This is based on the fact that inflation has significantly moderated and is expected to remain contained in the coming months as well. Also, given the prediction of normal monsoon, pressure on food inflation will be limited,' she told ANI.
Badhan noted that the RBI is likely to revise down its inflation projections for FY26 by about 10 bps, reflecting better-than-expected outcomes in Q1. However, she ruled out the possibility of a 50 bps cut for now.
'We believe 50bps is unlikely as June rate cut is a front-loading measure. RBI will also be cautious before it sees the actual spatial distribution of monsoon. Moreover, with the US Fed likely to stay on pause till September 2025, narrowing interest spreads could impact FPI inflows and the Indian rupee. As such, a 25bps cut is more prudent,' she explained.
Echoing a dovish stance, M. Govind Rao, Member of the 14th Finance Commission and Chairman of the Karnataka Regional Imbalances Redressal Committee, said there is enough room for the RBI to ease policy further.
'The inflation rate is well within the target, and there is sufficient space to reduce the rate. With uncertainty due to tariff increases and global volatility, it is appropriate to reduce the interest rate to trigger higher investment,' he told ANI.
As the MPC concludes its deliberations on Friday, June 6, all eyes will be on Governor Sanjay Malhotra statement at 10 am.
With inflation under control and a strong push for investment-led growth, the RBI faces a critical balancing act between growth support and financial stability. (ANI)
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