The Reserve Bank is likely to go for a third consecutive rate cut of 25 basis points on Friday as inflation continues to remain below the median target of 4 per cent, to push growth amid continued global uncertainty triggered by the US tariff moves.
Reserve Bank’s rate-setting panel Monetary Policy Committee (MPC) will start deliberations on the next bi-monthly monetary policy on June 4 and announce the decision on June 6 (Friday). The RBI reduced the key interest rate (repo) by 25 bps each in February and April bringing it to 6 per cent.
Six-member MPC headed by RBI Governor Sanjay Malhotra also decided to change the stance from neutral to accommodative in its April policy. In response to the 50-bps cut in the policy repo rate since February 2025, most of the banks have reduced their repo-linked external benchmark based lending rates (EBLRs) and marginal cost of funds-based lending rate (MCLR).
"We do believe that given the rather benign inflation conditions and the liquidity situation which has been made very comfortable through various measures of the RBI, the MPC would go in for a 25 bps cut in the repo rate on the (June) 6th.
The commentary on both growth and inflation will be important as there are expectations of revisions in their forecasts for both the parameters,” said Madan Sabnavis, Chief Economist, Bank of Baroda. He also expects 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 US would end in July. Aditi Nayar, Chief Economist, ICRA said with CPI inflation forecast to trail 4 per cent for a large part of this fiscal, monetary easing by the MPC is likely to continue.
"A 25 bps rate cut is expected next week, followed by two more cuts over the subsequent two policy reviews, taking the repo rate to 5.25 per cent by the end of the cycle,” she said. In its annual report released on Thursday, the RBI said monetary policy is committed towards achieving durable price stability, which is a necessary prerequisite for high growth on a sustained basis. The Reserve Bank also said it will undertake liquidity management operations in sync with the monetary policy stance and keep system liquidity adequate to meet the needs of the productive sectors of the economy.
The government has mandated the central bank to ensure Consumer Price Index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side. Secretary General of industry body Assocham, Manish Singhal too believes that with inflation hitting multi-year lows and expectations remaining benign, there is room for monetary easing and 25 basis points reduction in the repo rate in the upcoming policy. ”Though the INR is likely to come under depreciation pressure in the short term, especially if global interest rates (e.g. in the US) remain elevate, its impact will depend on the changes in global risk appetite, crude oil prices and the Fed’s own monetary stance.
We emphasize the importance of strategic patience over aggressive easing, given the current environment of steady growth and manageable inflation,” Singhal said. Pradeep Aggarwal, Founder and Chairman, Signature Global believes that the Reserve Bank of India is once again expected to offer major relief to homebuyers in its upcoming MPC meeting by reducing the repo rate by 25 basis points, driven by easing inflation and a stable economic outlook.
"Given that several scheduled commercial banks have been reducing their lending rates following the previous two RBI MPC outcomes, another rate cut at this juncture would act as a catalyst for increased housing demand across segments. As a result, both first-time homebuyers and investors are likely to be encouraged to enter the real estate market, further strengthening demand across the sector,” Aggarwal said.
According to an article published in the RBI’s May Bulletin, domestic bond yields steadily declined to multi-year lows, aided by back-to-back policy rate cuts in February and April 2025 and the liquidity measures that augmented durable liquidity.
The overall monetary and credit conditions are evolving in sync with the Reserve Bank’s extant monetary policy stance of ensuring that inflation progressively aligns with the target, while supporting growth. India’s GDP growth has been estimated to have slowed to four-year low of 6.5 per cent during fiscal 2024-25. Retail inflation in April 2025 was at 3.16 per cent, the lowest year-on-year inflation after July 2019.
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