RBI likely to carry out ‘jumbo' rate cut to boost India's credit cycle: SBI Research

Mint

2 days ago

The Reserve Bank of India (RBI) is expected to cut its key benchmark interest rates by 50 basis points in its upcoming June 2025 monetary policy committee (MPC) meeting, according to an SBI Research report released on Monday, 2 June 2025.
'We expect a 50-basis point rate cut in June'25 policy as a large rate cut could reinvigorate a credit cycle,' said the research agency in its latest report. 'Cumulative rate cut over the cycle could be 100 basis points,' they said.
RBI is scheduled to hold its bi-monthly meeting starting Wednesday, 4 June 2025, and Governor Sanjay Malhotra will announce the MPC results on Friday, 6 June 2025.
RBI, in its first policy meeting for the 2025-26 fiscal year, announced a 25-basis-point rate cut for the second consecutive time to its current level of 6 per cent and shifted its stance from 'Neutral' to 'Accommodative'.
The research agency attributed its stance of a 'jumbo rate cut' to the receding domestic liquidity and financial stability concerns in the Indian economy. SBI Research suggested that the main focus of the upcoming policy should be keeping the domestic growth momentum intact.
'Domestic liquidity and financial stability concerns have receded. Inflation is expected to stay within tolerance band. Keeping the domestic growth momentum intact should be the main policy focus and provides the justification of a jumbo rate cut,' said the analysts at SBI Research in its report.
India's credit growth is witnessing a slowdown to 9.8 per cent levels as of 16 May 2025, which is narrowing the gaps between the deposits and the advances in the economy, favouring the impact from liquidity, according to the research report.
'Slowdown in credit growth, to 9.8% as on May 16, 2025 and narrowing gap between deposits and advances have favorably impacted liquidity,' noted SBI Research.
The agency expects core liquidity in the economy to be ₹ 5.3 lakh crore by the end of June 2025. 'Durable liquidity is likely to remain surplus in FY26,' they said.
The report also said that the share of individuals in total credit maintained its rising momentum, at 47.8 per cent in March 2025, compared to 41.5 per cent in March 2020. This means more of the loans given out by the banks or other financial institutions are going to direct individual borrowers, rather than businesses or corporations.
'RBI is expected to revisit the liquidity framework in the current year,' said SBI Research in its report.
IMF data suggests that India's GDP is expected to slow by 50 basis points due to rising protectionism and uncertainty. The downward economic projection applies to all major economies, as per the report.
On the inflation front, the agency expects global headline inflation to decline at a slower-than-expected pace. 'Inflation in emerging economy is expected to moderate with latest reading for China suggesting negative inflation,' said the analysts in the report.