MPC Poll | RBI likely to cut repo rate by 25 bps in June policy

Should the RBI cut key rates in the June policy, it will the third consecutive rate cut by the MPC - after February and April - in an effort to further support growth.

During the April policy, the central bank, along with a policy rate cut, changed its stance to ‘Accommodative’ from ‘Neutral’ citing the need to monitor and assess the economic outlook. An accommodative stance implies the central bank is prepared to further expand the money supply, to boost economic growth. The central bank, during an accommodative policy period, is willing to cut the interest rates and a rate hike is ruled out. The central bank typically adopts an accommodative policy when growth needs policy support and inflation is not the immediate concern.

The bumper dividend of Rs 2.69 lakh crore by the Reserve Bank of India too is expected to ease the fiscal situation, helping the Centre with the deficit target of 4.4 percent for the year, economists have told Moneycontrol.

Treasury heads are also bracing for more liquidity injection from the RBI to help the rate cuts gets transmitted in a faster way. On the policy tone, all respondents Moneycontrol spoke to have voted for a dovish policy with an assurance on the liquidity front.

Inflation Projection

RBI Governor Malhotra recently said that the Trump tariffs could have two opposing impacts on Indian economy. The imported inflation will result in the increase in prices. On the other hand, slower global demand will soften prices. However, the impact of the latter will be stronger. Hence, the tariffs are likely to result in overall lower inflation for the Indian economy, the RBI Governor said.

Few experts see the central bank revising down its inflation projection in the June policy due food inflation and overall headline inflation staying below RBI's medium-term target.

However, the downward revision is unlikely to be higher, given uncertainty on monsoon and other potential adverse weather events, economists said.

“CPI inflation forecast likely to be revised down by 20-30 bps,” said Vivek Kumar, Economist at QuantEco Research.

Further, Gaura Sen Gupta, Economist at IDFC First Bank said there is a scope for RBI to revise down the estimate as the model-based estimate is tracking at 3.5%, even after keeping buffer for potential food supply shocks. Core inflation has been low since last year, indicating presence of a negative output gap.

During the April monetary policy, the RBI reduced its CPI inflation projection to 4 percent for FY26, with Q1 at 3.6 percent, Q2 at 3.9 percent, Q3 at 3.8 percent and Q4 at 4.4 percent, respectively. India's retail inflation slowed to 3.16 percent in April from 3.34 percent in March. This is the lowest year-on-year rate of inflation since July 2019, the government has said.

Growth Push

Most economists and treasury heads have said that the central bank is unlikely to change its projections on the growth front, considering the downward risk amid global uncertainties. However, some experts believe there will be a downward revision to RBI's growth projection.

“There will be a downside risk, especially if Q1 GDP is lower than expectations,” said Dhiraj Nim, Economist/FX Strategist at ANZ Research.

Read More: Banks said to have asked RBI to lower daily cash reserve rule

During the April policy review, RBI Governor Sanjay Malhotra had revised India's growth rate projection for FY26 to 6.5 percent, from 6.7 percent forecasted in the February meeting. Governor Malhotra also projected Q1FY26 GDP growth at 6.5 percent (down from 6.7 percent), Q2 at 6.7 percent (down from 7 percent), Q3 at 6.6 percent (up from 6.5 percent) and Q4 at 6.3 percent (down from 6.5 percent).

Malhotra had also said that the reciprocal tariffs announced by US President Trump have dampened the global sentiment and fuelled uncertainty. "The dent on global growth due to trade frictions will also impede domestic growth," the RBI Governor had said in April.