RBI's Prospective Rate Cut: A Stimulus for Economic Growth

The Reserve Bank of India (RBI) is anticipated to declare a 50 basis points reduction in the repo rate during its monetary policy update on June 6, as highlighted in a State Bank of India (SBI) report. This substantial cut aims to rejuvenate the credit cycle, potentially resulting in a total rate reduction of up to 100 basis points throughout the easing phase.

SBI analysts project, 'A 50-basis point rate cut in June's policy, could reinvigorate the credit cycle.' The report underscores that the banking system's current liquidity is in extended surplus, prompting liabilities to reprice swiftly during the ongoing rate-easing phase. Banks have already reduced saving account interest rates to a baseline of 2.70 percent.

Additionally, fixed deposit rates have decreased by 30-70 basis points since February 2025. The report also forecasts a robust transmission of rate cuts to deposit rates in upcoming quarters. SBI notes that domestic liquidity concerns and financial stability issues have lessened, with inflation expected to remain within the RBI's acceptable range.

Supporting economic growth is emphasized as a priority in monetary policy, according to the report, advocating for a 'jumbo' rate cut. India's economy exhibited a 7.4 percent GDP growth in the last quarter of FY25, bolstered by a 9.4 percent year-on-year increase in capital formation.

The report also highlights favorable developments like the Indian Meteorological Department's prediction of an above-normal monsoon, abundant crop arrivals, and declining crude oil prices. Consequently, SBI revises its FY26 CPI inflation forecast to around 3.5 percent with a slight downward tilt. Furthermore, the RBI's recent annual report suggests higher expected household savings, deemed sufficient to fund national growth without inciting demand-driven price pressures in FY26.

(With inputs from agencies.)