RBI Likely to Cut Rates Amid Benign Inflation and Global Uncertainty
1 Jun 2025 9:13 PM IST1 Jun 2025 9:13 PM IST
This would be the third consecutive rate cut, expected to bring the repo rate down to 5.75 per cent.
Benign inflation and a comfortable liquidity situation amid rising global uncertainty are expected to prompt the Monetary Policy Committee of the Reserve Bank of India (RBI) to cut interest rates (File image)
Mumbai: Benign inflation and a comfortable liquidity situation amid rising global uncertainty are expected to prompt the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) to cut interest rates on Friday to support domestic growth. The rate-setting panel will begin its three-day bi-monthly monetary policy deliberation on Wednesday (June 4) and announce the outcome on Friday.
Ashima Goyal, former member of the MPC, told Financial Chronicle, “I expect a 25-basis point cut to bring real policy rates closer to equilibrium levels and growth rates closer to potential.”
Madhavi Arora, lead economist at Emkay, said, “We maintain India’s terminal policy rate could reach 5.25 per cent (+/-0.25 per cent), while system liquidity will still end FY26 at a surplus of 1.1 per cent of NDTL — lower than past easing cycles.”
Madan Sabnavis, Chief Economist at Bank of Baroda, who also expects a 25 bps rate cut, added, “The commentary on both growth and inflation will be important, as there are expectations of revisions in their forecasts for both parameters. It is also expected that the RBI will detail its analysis on how the global environment would be affecting the Indian economy, considering that the tariff reprieve provided by the USA would end in July.”
This would be the third consecutive rate cut, expected to bring the repo rate — the rate at which the RBI lends to commercial banks — down to 5.75 per cent. The RBI had cut the repo rate by 25 basis points each in February and April, bringing it down to 6 per cent. One basis point is one hundredth of a percentage point. The six-member MPC had also changed its stance from neutral to accommodative in its April policy.
In its Annual Report for 2025 released last week, the RBI expressed confidence in achieving its medium-term inflation target of 4 per cent, as headline inflation dipped below that level in February and March 2025. The central bank stated that this trend strengthens the outlook for inflation management while creating scope for monetary policy to remain growth-supportive in a moderate economic environment.
In line with expectations, real GDP registered 6.5 per cent growth in fiscal 2025, elevating the Indian economy's size to $3.9 trillion from $3.6 trillion in fiscal 2024. Nominal growth remained in single digits at 9.8 per cent. India’s GDP is expected to grow at 6.5 per cent in fiscal 2026, with risks tilted downwards.
Meanwhile, CPI-based inflation eased to 3.2 per cent in April — the lowest reading since July 2019. The decline was driven by food inflation, which fell to 1.8 per cent, the lowest since October 2021, down from 2.7 per cent in March.
Ashima Goyal, former member of the MPC, told Financial Chronicle, “I expect a 25-basis point cut to bring real policy rates closer to equilibrium levels and growth rates closer to potential.”
Madhavi Arora, lead economist at Emkay, said, “We maintain India’s terminal policy rate could reach 5.25 per cent (+/-0.25 per cent), while system liquidity will still end FY26 at a surplus of 1.1 per cent of NDTL — lower than past easing cycles.”
Madan Sabnavis, Chief Economist at Bank of Baroda, who also expects a 25 bps rate cut, added, “The commentary on both growth and inflation will be important, as there are expectations of revisions in their forecasts for both parameters. It is also expected that the RBI will detail its analysis on how the global environment would be affecting the Indian economy, considering that the tariff reprieve provided by the USA would end in July.”
This would be the third consecutive rate cut, expected to bring the repo rate — the rate at which the RBI lends to commercial banks — down to 5.75 per cent. The RBI had cut the repo rate by 25 basis points each in February and April, bringing it down to 6 per cent. One basis point is one hundredth of a percentage point. The six-member MPC had also changed its stance from neutral to accommodative in its April policy.
In its Annual Report for 2025 released last week, the RBI expressed confidence in achieving its medium-term inflation target of 4 per cent, as headline inflation dipped below that level in February and March 2025. The central bank stated that this trend strengthens the outlook for inflation management while creating scope for monetary policy to remain growth-supportive in a moderate economic environment.
In line with expectations, real GDP registered 6.5 per cent growth in fiscal 2025, elevating the Indian economy's size to $3.9 trillion from $3.6 trillion in fiscal 2024. Nominal growth remained in single digits at 9.8 per cent. India’s GDP is expected to grow at 6.5 per cent in fiscal 2026, with risks tilted downwards.
Meanwhile, CPI-based inflation eased to 3.2 per cent in April — the lowest reading since July 2019. The decline was driven by food inflation, which fell to 1.8 per cent, the lowest since October 2021, down from 2.7 per cent in March.
( Source : Deccan Chronicle )
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