The Reserve Bank of India (RBI) is expected to cut its benchmark repo rate by 25 basis points for the third consecutive time during its upcoming monetary policy meeting, which concludes on June 6. Experts believe the combination of slowing economic growth and well-contained inflation gives the central bank room to continue easing monetary policy and maintaining a supportive liquidity stance.
India’s economic growth has slowed to 6.5% in FY25, down from 9.2% in the previous year, though the January-March quarter delivered a stronger-than-expected performance at 7.4%. Inflation remains within the RBI’s target of 4%, creating an environment conducive to another rate cut. In April, the central bank had already reduced the repo rate by 25 basis points to 6%.
Madan Sabnavis, Chief Economist at Bank of Baroda, said the favorable inflation and liquidity conditions justify a 25 bps rate cut. He also expects the RBI to revise its growth and inflation forecasts, while addressing global risks such as the potential impact of the upcoming expiry of U.S. tariff exemptions in July.
A. Prasanna of ICICI Securities echoed this view, highlighting that the strong Q4 GDP data supports a case for continued moderate easing. He noted that the RBI’s accommodative stance and gradual 25bps rate cuts give the Monetary Policy Committee (MPC) flexibility to respond to evolving economic data. The central bank has also supported liquidity by injecting funds into the banking system and refraining from absorbing excess liquidity as it typically does.
Barclays economist Aastha Gudwani pointed out that first-quarter growth exceeded forecasts, driven by a manufacturing rebound and strong capital spending, despite subdued consumption. She confirmed India’s full-year GDP growth at 6.5%.
Crisil predicts the RBI may reduce rates by a total of 50 basis points during the current fiscal year, citing favorable macroeconomic conditions. These include the India Meteorological Department’s (IMD) forecast of an above-average monsoon (106% of the long period average), which is expected to enhance agricultural output, stimulate rural demand, and keep food inflation low. Additionally, global crude oil prices are expected to remain modest at $65-70 per barrel, significantly lower than the previous year’s average of $78.8.
(The content is sourced from agencies and has not been edited by mtimes.co.in.)
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