RBI Poised for Third Consecutive Rate Cut

The Reserve Bank of India (RBI) is poised to implement a 25 basis points cut to its benchmark interest rate for the third consecutive time during its monetary policy committee meeting, which concludes on June 6. This anticipated decision comes amid signs of slowing economic growth and stable inflation, creating an environment conducive for further monetary easing. Economists suggest that the RBI’s supportive liquidity stance will continue as the central bank navigates the complexities of the current economic landscape.

Economic Context and Growth Projections

India’s economic growth has shown signs of deceleration, with the GDP growth rate dropping to 6.5% in the fiscal year 2025, down from 9.2% the previous year. However, the March quarter delivered a surprisingly robust growth rate of 7.4%, indicating some resilience in the economy. Despite the slowdown, inflation remains within the RBI’s target of 4%, providing the central bank with the flexibility to adjust its monetary policy. Madan Sabnavis, the chief economist at Bank of Baroda, expressed confidence in the RBI’s decision to cut the repo rate, citing favorable inflation conditions and a comfortable liquidity situation. The RBI’s previous rate cut in April, which lowered the repo rate to 6%, reflects its ongoing commitment to support economic growth.

Market Reactions and Expectations

Economists from various financial institutions are aligning in their expectations for the RBI’s upcoming decision. A Prasanna from ICICI Securities anticipates a 25 basis points cut, arguing that the strong GDP growth in the January-March quarter supports the case for moderate easing. He noted that the RBI has already taken steps to ease financial conditions by ensuring ample liquidity in the market. This approach has involved injecting rupee liquidity and minimizing typical borrowing from the money market, which helps absorb excess funds from banks. Such measures are crucial for maintaining stability in the financial system while fostering an environment for growth.

Global Economic Considerations

As the RBI prepares to make its decision, global economic factors also play a significant role. Aastha Gudwani, an economist at Barclays, highlighted that the first quarter’s growth exceeded expectations, driven by a resurgence in manufacturing and strong capital expenditure, despite weak consumption. The RBI is expected to revise its growth and inflation forecasts, taking into account global risks, particularly the impending expiration of the US tariff reprieve in July. This situation underscores the interconnectedness of domestic and international economic factors that influence the RBI’s policy decisions.

Future Outlook and Rate Predictions

Looking ahead, Crisil forecasts that the RBI may implement an additional 50 basis points cut within the fiscal year, driven by favorable macroeconomic conditions. Anticipated factors include expectations of an above-normal monsoon and lower global crude oil prices. The India Meteorological Department (IMD) predicts a monsoon at 106% of the long-term average, which is likely to enhance agricultural output, stimulate rural demand, and help keep food inflation in check. With crude prices projected to average between $65 and $70 per barrel, down from last year’s $78.8, the RBI’s monetary policy will be closely watched as it adapts to these evolving economic conditions.

Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.

Follow Us on Twitter, Instagram, Facebook, & LinkedIn