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Informist, Monday, Jun. 2, 2025

 

By Shubham Rana

 

MUMBAI – The Reserve Bank of India's Monetary Policy Committee is widely expected to lower the policy repo rate by 25 basis points for the third consecutive meeting on Friday to support growth amidst a challenging global environment while inflation remains below the target, according to 14 economists and treasury officials polled by Informist.

 

Thirteen of the 14 poll respondents said they see the committee reducing the repo rate to 5.75% from 6.00% at present at the end of the three-day MPC meeting on Friday. State Bank of India was the sole outlier in the poll, expecting a larger rate cut of 50 bps.

 

The MPC began reducing interest rates in February, when it delivered the first repo rate cut in nearly five years to support economic activity, which was slowing down. While economic activity has picked up in recent months, underlined by a four-quarter high GDP growth print of 7.4% for Jan-Mar, the outlook remains far from robust, economists said.  

 

Economic growth in India, as with other countries, is likely to be weighed down by the global trade scenario, which faces uncertainty from the US' tariff policies. The RBI itself lowered the GDP growth forecast for 2025-26 (Apr-Mar) in April by 20 bps to 6.5% citing global trade and policy uncertainties. While the finance ministry last month said GDP growth for FY26 could be near 6.8%, economists see it lower at close to 6.0%.  

 

"Given the incoming data, it is difficult to envisage that the RBI, facing below target inflation, sub-optimal growth and weak investment outlook will be inclined to be experimental in this upcoming policy meeting," Rahul Bajoria, head of India economic research at BofA Securities, said in a report on May 22. "We believe this has set the stage for another 25 bps rate cut to take the repo rate to 5.75%, a dovish policy guidance, and ongoing liquidity support."

 

According to Soumya Kanti Ghosh, SBI's group chief economic advisor, the MPC should lower the repo rate by 50 bps this week as a large rate cut could reinvigorate a credit cycle and act as a counterbalance to uncertainty. "Domestic liquidity and financial stability concerns have receded. Inflation is expected to stay within tolerance band," Ghosh said in a report. "Keeping the domestic growth momentum intact should be the main policy focus and provides the justification of a jumbo rate cut."

 

While there is near unanimity on what the MPC should do on Friday, the same can't be said for the future meetings. Most economists and market participants are of the view that the MPC should cut the repo rate once more after June and then keep it steady at 5.50%.

 

However, some said interest rates may have to be lowered to 5.0-5.25% to support economic activity.

 

INFLATION COMFORT

While the growth outlook remains uncertain, the inflation scenario in the country has turned extremely benign. CPI inflation fell to a 69-month low of 3.16% in April because of lower food prices, while core inflation also stays comfortable at near 4%.

 

Some economists expect inflation to have declined further in May, and stay around the 4% target of the RBI in the near term. The low inflation outlook has been further supported by expectations of above-normal monsoon rains and the projection of record-high food grain output.

 

"Inflation in the current quarter is tracking 60 bps below RBI forecast of 3.6%, and the full year inflation should also average 50 bps lower compared to its forecast of 4%," ICICI Securities Primary Dealership said in a note. "RBI tends to be more conservative when giving such estimates, but it should have sufficient conviction to lower the forecasts significantly."

 

This benign inflation outlook, poll respondents said, allows the MPC to focus on supporting domestic demand with lower interest rates amidst a challenging growth outlook.  

 

The following are expectations of respondents from the Jun. 4-6 meeting of the MPC:

 

ORGANISATION	REPO RATE EXPECTATION
Acuite Ratings and Research	25 bps cut
Barclays	25 bps cut
BofA Securities	25 bps cut
Capital Economics	25 bps cut
Federal Bank	25 bps cut
ICICI Bank	25 bps cut
ICICI Securities Primary Dealership	25 bps cut
IDFC FIRST Bank	25 bps cut
India Ratings and Research	25 bps cut
Kotak Mahindra Bank	25 bps cut
Moody's Analytics	25 bps cut
Standard Chartered	25 bps cut
State Bank of India	50 bps cut
YES Bank	25 bps cut

 

End

 

Edited by Vandana Hingorani

 

 

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