MPC outcome: RBI seen poised for aggressive rate cut
CHENNAI: The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, concludes its three-day meeting today (June 6, 2025). Amid escalating global trade tensions stemming from new US tariffs imposed by President Donald Trump, expectations are mounting for an aggressive monetary easing by the RBI. Markets and analysts widely anticipate a 25 basis points (bps) cut, with some forecasting a jumbo 50 bps reduction to sustain domestic growth momentum and offset external headwinds.
With recent cuts February and April this year by 25 bps each, the current REPO rate stands at 6%. These cuts have already prompted commercial banks to pass on benefits through reductions in External Benchmark-based Lending Rates (EBLRs) and Marginal Cost of Funds-based Lending Rates (MCLR), indicating effective policy transmission so far.
Key Drivers Behind Rate Cut Expectations
1. Global Economic Uncertainty
Trade Tensions: President Trump's renewed tariff actions have stoked fears of a global economic slowdown, weakening investor sentiment and external demand for Indian exports.
Oil Prices & Global Demand: Volatility in crude oil markets due to geopolitical tensions may strain India's import bill and inflationary trajectory.
2. Domestic Growth Concerns
India's Q1 FY26 GDP growth showed signs of deceleration due to weaker exports and subdued private consumption.
Industrial production has softened, and the Purchasing Managers' Index (PMI) readings for both manufacturing and services have moderated slightly.
3. Benign Inflation Outlook
Headline CPI inflation remains within the RBI's medium-term target range of 4%. Food inflation, although showing seasonal upticks, is largely under control. Core inflation remains muted due to weak demand.
4. Fiscal Policy Stance
The Union Government's fiscal policy continues to be growth-supportive, but with limited space for large-scale stimulus, pressure shifts to the RBI for counter-cyclical support.
Market Expectations
The market expects another 25 bps cut as the most likely outcome the latest MPC meeting, aligning with RBI's cautious and data-dependent approach.
However, there is a strong possibility of 50 bps cut if the RBI opts for preemptive, front-loaded easing to bolster sentiment and activity. Although unlikely, but not off the table, RBI may even opt for a status quo if the it views current liquidity and rate settings as adequate.
Implications of a Rate Cut
In the current scenario the impact of 25 bps cut will result in the rate of 5.75%, which can provide moderate boost to liquidity and credit demand
The market watchers observe that the June 2025 MPC meeting is likely to result in at least a 25 bps repo rate cut, with a 50 bps cut a close contender given the increasing external risks and domestic growth slowdown. The decision will reflect the RBI's assessment of global trade dynamics, domestic inflation stability, and the effectiveness of past transmission.
A forward-looking and accommodative stance is expected to continue, with future action contingent on evolving macroeconomic indicators and external shocks, said a banking sector analyst.
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