Will the RBI Cut Rates Again? Insights from the Latest Monetary Policy Meeting

RBI's Monetary Policy Committee Meeting Underway

New Delhi: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) commenced its meeting on Wednesday to deliberate on a potential cut in the repo rate. Economists and industry analysts anticipate a third consecutive reduction of 25 basis points, bringing the rate down to 5.75 percent.

The meeting, led by RBI Governor Sanjay Malhotra, is set to reveal its conclusions on June 6. Previously, the RBI had already lowered the repo rate by 50 basis points in its last two policy reviews, resulting in a current rate of 6 percent.

Market observers are keenly monitoring the situation for indications of another rate cut, as there is growing anticipation for additional monetary support to stimulate domestic growth amidst deteriorating global economic conditions.

The RBI's shift towards a more accommodating stance is largely influenced by two key macroeconomic factors: low inflation rates and indications of a cyclical slowdown.

Current headline CPI inflation remains consistently below the RBI's medium-term target of 4 percent, while GDP growth is showing signs of softening, impacted by external factors such as trade disruptions stemming from recent U.S. policy changes.

Numerous rating agencies and international organizations have revised India's GDP growth forecasts for FY26 downward. While the RBI retained its growth estimate at 6.5 percent in April, other projections have been adjusted to a range of 6.0 percent to 6.3 percent.

"The MPC has clearly transitioned from a neutral to an accommodative approach, signaling the RBI's intention to inject liquidity and bolster growth. This shift is further supported by April's CPI inflation dropping to 3.2 percent, the lowest level since July 2019, and remaining comfortably within the RBI's target range," stated Bajaj Broking Research.

With inflation expectations stabilized, growth momentum slowing, and ongoing external vulnerabilities, the conditions appear increasingly favorable for another rate cut.

Although the final decision will hinge on the evolving global landscape, particularly from developed economies, market consensus is leaning towards the likelihood of a third rate cut to sustain India's growth trajectory, according to the report.

A recent report from SBI even forecasts a significant 50-basis point rate cut during the upcoming RBI MPC meeting in June.

"Concerns regarding domestic liquidity and financial stability have diminished. Inflation is anticipated to remain within acceptable limits. Maintaining domestic growth momentum should be the primary focus of policy, justifying a substantial rate cut," remarked Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.

With liquidity remaining in surplus, liabilities are being repriced more rapidly in the current rate-easing cycle. Banks have already lowered interest rates on savings accounts to a minimum of 2.70 percent.

Additionally, fixed deposit (FD) rates have seen reductions ranging from 30 to 70 basis points since February 2025. Strong transmission to deposit rates is expected in the upcoming quarters, as indicated by the SBI report.