The Monetary Policy Committee (MPC) of the Reserve Bank of India is expected to announce a 25 basis point reduction in the repo rate at its meeting on June 6. As a result, the key policy rate will be lowered from 6.00% to 5.75%, and the trend toward easier monetary policies started in 2023 will continue. In 2025, the committee made two repo rate cuts, each by 25 basis points, in February and April.
Retail inflation dropped to 3.16% in April, down from 3.34% in March. Falling food product prices are the reason for the figure's six-year low. Because inflation remains below 4%, the RBI can still ease its policies without risking a too-high price increase. According to Bank of Baroda's Chief Economist Madan Sabnavis, the current rise in inflation and availability of cash make a rate cut likely.
From Q3 to Q4 of FY25, the Indian economy's GDP increased by about 7.4%, which was higher than the previous 6.4%. But this growth is lower than the 8.4% seen in the same quarter of last year. If the MPC considers the economic outlook worsening along with uncertainty worldwide, it might act to support growth at home.
According to economists, India continues to face risks due to problems like market fluctuations, international conflicts, and issues in its supply chain. US tariff relief will expire in July, which could affect trade volumes and the overall mood in the market. Madhavi Arora is the Chief Economist at Emkay Global Financial Services and thinks that liquidity is not an issue as the RBI considers rate cuts. She believes the terminal rate might be reduced to 5.25%, and end-of-year liquidity will finish in surplus.
Barclays recently pointed out that the positive 7.4% growth rate in Q4 might cause people to question the planned additional rate cut. Still, it asserted that easing would help balance growth and inflation.
The firm believes the MPC will make a 25 basis point cut in interest rates. It is predicted that the cut could bring the 10-year government bond yield down to 6.0% by the end of 2025. Given the RBI's focus on being cautious and supportive, everyone will monitor the words used in the Monetary Policy Statement.