RBI's 50 bps rate cut surprise: Two economists who beat the crowd are back with another call

Time of India

13 hours ago

Two economists had predicted what perhaps no one else did: a 50 basis point cut in interest rates by the
Reserve Bank of India
in June Moneary Policy Committee's meeting. Now, they're making another prediction, forecasting more cuts even as most experts see the cycle nearing its end.
Soumya Kanti Ghosh
, Group Chief Economic Advisor at
State Bank of India
, and
Debopam Chaudhuri
, Chief Economist at
Piramal Enterprises
, were likely the only two to call the RBI's jumbo rate cut correctly this June. Both had publicly advocated for the central bank to go beyond the consensus 25 basis point cut expected by a dozen economists and bankers polled by The Economic Times.
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The latest RBI moves were met with surprise not just for their size, but for their dual-pronged approach—cutting both the policy rate and the CRR. While the latter move is being seen partly as a measure to help banks cope with the revenue loss from lower rates, it is also aimed at ensuring liquidity doesn't become a constraint just when credit growth may rebound.
But the mood among most economists is shifting towards caution. With inflation under control but the scope for further easing deemed narrow, the RBI's change in policy stance to neutral is being read as a signal that the central bank is likely done for now.
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Yet, Ghosh and Chaudhuri are standing their ground. While others see an end to the easing cycle, these two economists believe there is more to come—just as they did the last time, when few listened.
Chaudhuri is now forecasting more easing through the rest of the financial year.
The RBI is expected to broadly align with the US Federal Reserve's trajectory through the remainder of FY26, potentially delivering an additional 50 basis points of rate cuts across the four remaining policy reviews, Chaudhuri told ET Online.
'I anticipate a 25 bps cut in the October 2025 meeting, followed by a final 25 bps reduction in February 2026, bringing the terminal repo rate to 5%. This outlook is contingent on retail inflation remaining below 4% in the near term — a scenario that currently appears highly probable,' he said.
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Inflation has indeed cooled. The Consumer Price Index rose by just 3.2 per cent in April year-on-year, the slowest pace in nearly six years. With food prices softening, the central bank saw room to act, choosing growth over restraint.
RBI Governor
Sanjay Malhotra
, however, has struck a more cautious note. While announcing the
Monetary Policy Committee
's (MPC) latest decision, he said monetary policy is left with "limited space" to support growth under the current circumstances.
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The central bank on Friday delivered a surprise. Not only did it slash its benchmark repo rate by 50 basis points—its steepest move since the emergency 75-basis-point cut during the COVID-19 crisis in March 2020—it also lowered the
cash reserve ratio
(CRR) by 100 basis points in tranches starting September. That would bring the CRR down to 3%, helping inject more liquidity into the system.
Growth data released late last month suggested the economy had picked up steam. GDP expanded 7.4% in the January–March quarter, up from 6.4% in the prior three months. But the full-year picture was weaker.
GDP growth
for FY25 eased to a four-year low of 6.5%, sharply slowing from 9.2% the previous year, pulled down by sluggish demand and slowing business activity.
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Before RBI's rate cut announcement, some commentators had called for a strong response to prevent recent momentum from fizzling out, no one anticipated both a 50 bps rate cut and a phased CRR reduction. The latter is also expected to help banks offset some of the losses they face from lower lending rates.
The rate stance has now shifted. The RBI has moved from an 'accommodative' stance to a 'neutral' one, signalling that further decisions will be data-dependent.
Ahead of the June 6 policy decision, Chaudhuri had said: 'The MPC should consider a larger-than-expected 50 bps rate cut this time…A 50-bps cut now could help make up for that lost time and deliver a stronger boost to economic growth.'
SBI's Ghosh, too, had made his case in an investor note before the RBI rate cut announcement. 'We expect a 50-bps rate cut in the June 2025 policy, as a large cut could reinvigorate the credit cycle,' he had written in a SBI report.
The SBI report pointed out that inflation was within the RBI's comfort zone, giving the central bank room to focus on reviving growth. 'Given easing inflation and stable financial conditions, monetary policy must now prioritise sustaining growth momentum,' it said.
In a telephonic interview with Bloomberg, Ghosh has now said, 'The front-loaded cut will counterbalance prevailing uncertainty, which is now the buzzword.' He also said the phased CRR cut would help boost liquidity just when credit demand is expected to pick up in the second half of the fiscal year, starting September.
Ghosh told Bloomberg there is scope for lowering the benchmark rate by a quarter-point, 'but we are close to the end of it.' However, he did not indicate a timeline for such a move.
His prescience on monetary policy is not new. In April 2023, he was one of the few to predict that the central bank would pause its rate hikes. The key repo rate remained steady at 6.5% for nearly two years until Malhotra, who succeeded Shaktikanta Das, began cutting rates in February 2025.
Ghosh is also a member of the 16th Finance Commission, the constitutional body tasked with deciding how tax revenues are shared between the Union and states.