RBI MPC Initiates Policy Discussions as Rate Cut Expectations Rise
The Reserve Bank of India’s Monetary Policy Committee (MPC) commenced a crucial three-day meeting on Tuesday, with market analysts eagerly anticipating a potential cut in the policy rate. This move is seen as a necessary step to bolster economic growth amid external pressures, particularly recent tariff changes by the United States. The committee, led by RBI Governor Sanjay Malhotra, is set to announce its decision on Friday, with expectations ranging from a 25 to a surprising 50 basis points reduction in the current repo rate of 6 percent.
Expectations for Rate Cuts
As the MPC convenes, the financial community is buzzing with speculation about the future of interest rates. Following two previous cuts of 25 basis points each in February and April 2025, many analysts believe that another reduction is imminent. A 25 basis point cut would mark the third consecutive decrease this year, while a more aggressive 50 basis point cut could significantly impact borrowing costs. The anticipation is fueled by the recent easing of rates by banks, which have already adjusted their external benchmark-linked lending rates and marginal cost of funds-based lending rates in response to earlier cuts.
SBI Research has suggested that the RBI might consider a “jumbo” rate cut of 50 basis points in June, indicating a proactive approach to stimulate economic activity. CareEdge Ratings supports this view, noting that current inflation trends provide the RBI with the flexibility to prioritize growth. They predict a total policy rate cut of 50 basis points in FY26, with the possibility of further reductions if economic growth falters.
Impact on Borrowers and Economic Growth
The potential rate cuts are expected to have a significant impact on borrowers, particularly in the micro, small, and medium enterprises (MSMEs) sector. Deepak Aggarwal, Co-founder and Co-CEO of Moneyboxx Finance, emphasized that a lower interest rate environment, combined with targeted liquidity measures, could enhance credit flow to MSMEs and non-banking financial companies (NBFCs). This is especially crucial for businesses operating in rural and semi-urban areas, where access to affordable credit can drive growth.
Raoul Kapoor, Co-CEO of Andromeda Sales and Distribution, echoed these sentiments, noting that a 25 basis point cut would bring the total reduction for the calendar year to 75 basis points. He highlighted that easing rates not only provides immediate financial relief but also encourages consumer spending and investment, which are vital for overall economic growth. As a result, both existing and potential borrowers can anticipate a more favorable borrowing landscape in the coming months.
Committee Composition and Economic Context
The six-member MPC consists of three RBI officials and three external members appointed by the government. Alongside Governor Sanjay Malhotra, the committee includes Deputy Governor M Rajeshwar Rao and Executive Director Rajiv Ranjan. The external members are Nagesh Kumar, Director and CEO of the Institute for Studies in Industrial Development; economist Saugata Bhattacharya; and Professor Ram Singh, Director of the Delhi School of Economics.
This meeting follows a robust GDP growth rate of 7.4 percent, surpassing market expectations of 6.8 percent. Mandar Pitale, Head of Financial Markets at SBM Bank (India), anticipates a 25 basis point cut at the June MPC meeting, suggesting that the ongoing accommodative stance will allow the committee to respond effectively to any unexpected economic data. Rohit Arora, CEO and Co-Founder of Biz2X & Biz2Credit, also sees a cut of 25 to 50 basis points as likely, which would provide a timely boost to credit flow, particularly for MSMEs and the housing sector.
As the MPC deliberates, the outcome of this meeting could shape the economic landscape in India, influencing borrowing costs and overall growth trajectories in the months ahead.
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