Monsoon showers to bring monetary relief? SBI bets on a likely 50 bps rate cut this June
Reserve Bank of India may cut repo rate by 50 bps on June 6. State Bank of India expects this move to boost credit demand. The banking system has ample liquidity. Savings and fixed deposit rates have already decreased. Inflation is under control, so growth is the priority. India's GDP grew by 7.4% in the fourth quarter.
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Monsoon brings optimism and economic relief
Rain, rates, and rural demand: All eyes on RBI
The Reserve Bank of India (RBI) is likely to slash the repo rate by 50 basis points (bps) in its upcoming monetary policy announcement on June 6, a new report from the State Bank of India SBI ) noted. The report refers to the anticipated move as a 'jumbo' cut, likely aimed at reviving credit demand and sustaining economic momentum."We expect a 50-bps rate cut in the June 2025 policy, as a large cut could reinvigorate the credit cycle ," the SBI report said, adding that the total rate cut during this easing cycle could eventually reach 100 bps.SBI highlighted that the Indian banking system is currently flush with liquidity, which is accelerating the repricing of liabilities. Many banks have already slashed savings account interest rates to as low as 2.70%, and fixed deposit (FD) rates have been cut by 30–70 bps since February 2025.With this ample liquidity and improved financial stability, the report expects that the RBI's rate cuts will continue to be effectively transmitted to deposit and lending rates.The report emphasised that inflation remains within the central bank's comfort zone, allowing policymakers to shift focus toward boosting growth. 'Given easing inflation and stable financial conditions, monetary policy must now prioritise sustaining growth momentum,' the report stated.India's GDP grew by 7.4% in the fourth quarter of FY25, down slightly from 8.4% a year earlier. However, growth was underpinned by a robust 9.4% year-on-year rise in capital formation, a positive sign for future economic activity.Adding to the upbeat outlook, the Indian Meteorological Department (IMD) has forecast an above-normal monsoon for 2025 — the second consecutive year of strong rainfall. This year's rains have arrived in Kerala eight days ahead of schedule, spreading to nearly half the country earlier than expected — the earliest monsoon onset in 16 years.The monsoon is vital to India's nearly \$4-trillion economy, supplying about 70% of the annual rainfall needed for agriculture. Farming employs over half of India's 1.4 billion population and contributes roughly 16% to GDP. Crops like rice, wheat, sugarcane, soybeans, and cotton depend heavily on seasonal rains.A bountiful monsoon supports higher crop yields, eases inflationary pressure, and boosts rural incomes — often translating into increased consumer spending during festive and wedding seasons.Conversely, poor rains can trigger food inflation, force imports, and prompt export curbs.Food prices, which make up nearly half of India's Consumer Price Index (CPI), are a key metric for the RBI when setting policy. The strong rainfall in 2024 played a crucial role in stabilising food prices, enabling recent rate cuts.With the IMD projecting another strong monsoon in 2025 and global crude oil prices trending downward, SBI revised its inflation forecast for FY26 to around 3.5%, with a downward bias.The report also noted that rising household savings, as highlighted in the RBI's latest Annual Report, could comfortably support domestic investment without stoking demand-side inflation.As the RBI gears up for its June 6 policy meet, potentially followed by another rate cut in August, the stage seems set for an easing cycle powered by favorable macroeconomic factors.
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