RBI Anticipated to Reduce Repo Rate by 50 Basis Points on June 6

Monetary Policy Update

The Reserve Bank of India (RBI) is likely to announce a reduction of 50 basis points (bps) in the repo rate during its monetary policy meeting scheduled for June 6, as indicated by a report from the State Bank of India (SBI).

The SBI report suggests that a significant rate cut could stimulate the credit cycle, potentially leading to an overall reduction of up to 100 bps throughout the easing phase. SBI stated, 'We anticipate a 50-basis point cut in the June policy, as a substantial reduction could rejuvenate the credit cycle.'

It was noted in the report that the current liquidity situation within the banking sector is in a state of extended surplus. Consequently, liabilities are being repriced more swiftly during this rate-easing phase. Banks have already lowered interest rates on savings accounts to a minimum of 2.70%.

Moreover, fixed deposit (FD) rates have seen a decrease of 30-70 bps since February 2025. The report also highlighted that the impact of rate cuts on deposit rates is expected to remain robust in the upcoming quarters.

Economic Insights

SBI further mentioned that concerns regarding domestic liquidity and financial stability have diminished. Inflation is projected to stay within the RBI's acceptable range. In light of this, the report emphasizes that sustaining growth momentum should be the primary objective of monetary policy, reinforcing the argument for a 'jumbo' rate cut.

On the economic front, India's GDP recorded a growth of 7.4% in the fourth quarter of FY25, down from 8.4% in the same period of the previous fiscal year. This growth was primarily driven by a notable increase in capital formation, which rose by 9.4% year-on-year.

The report also highlighted other favorable developments, including the Indian Meteorological Department's (IMD) prediction of an above-normal monsoon, a strong crop yield, and declining crude oil prices. These factors have prompted SBI to adjust its Consumer Price Index (CPI) inflation forecast for FY26 to approximately 3.5%, with a downward bias.

Additionally, SBI indicated that the anticipated rise in household savings, as outlined in the latest RBI Annual Report, would sufficiently support the nation's growth without triggering demand-driven inflationary pressures in FY26.