RBI monetary policy: Will RBI opt for a jumbo 50 bps rate cut today?

June 6, 2025 – On the eve of the Reserve Bank of India’s (RBI) upcoming Monetary Policy Committee (MPC) meeting, market analysts and economists are bracing for a decisive move: a 50‑basis‑point (bps) cut in the repo rate. The decision comes as the country grapples with persistent inflationary headwinds, a sluggish growth trajectory, and a global monetary tightening cycle that has seen the U.S. Federal Reserve and the European Central Bank hike rates at a brisk pace.

Why a 50‑Basis‑Point Cut?

The RBI’s last policy statement, released on May 18, hinted that the central bank was “monitoring inflation closely” and that any rate adjustment would hinge on domestic data and global developments. A 50‑bps cut – the largest reduction the RBI has executed in the past three years – would lower the repo rate from its current 6.75 % to 6.25 %. This move is aimed at easing liquidity in the banking system, supporting credit growth, and counteracting a dip in real economic activity.

1. Inflation Dynamics

Although headline inflation has moderated from the double‑digit highs of last year, it remains above the RBI’s 4‑6 % tolerance band. Core inflation, which excludes food and fuel, has hovered around 5.7 %. In the latest Wholesale Price Index (WPI) report, food‑price inflation eased to 3.1 % in May, a 15‑month low, while non‑food inflation accelerated to 7.9 %. The RBI’s concern is that this uneven mix could undermine the stability of consumer expectations, a key driver of future inflation.

2. Economic Growth and Credit

India’s GDP growth rate is projected at 6.5 % for FY 2025‑26, falling short of the 7 % target set by the government in its 15th Five‑Year Plan. The Reserve Bank’s own data show a 3.4 % decline in retail credit growth during the January–March quarter. A rate cut is seen as a lever to stimulate borrowing for both households and businesses, thereby supporting consumption and investment.

3. Global Monetary Context

The U.S. Federal Reserve’s 5‑quarterly hike cycle and the ECB’s tightening stance have tightened global financial conditions. A lower repo rate in India is expected to reduce the differential between Indian and foreign rates, curbing capital outflows and supporting the rupee. Moreover, with global liquidity easing, the RBI is positioned to provide a cushion to Indian markets.

Market Reactions

Currency Markets

The Indian rupee, which had been trading at 83.35 INR/USD as of 10:00 GMT, slipped to 83.45 INR/USD in the run‑up to the announcement, reflecting investor anticipation of a rate cut and a widening yield spread. The rupee’s volatility index rose to 15.8, a 12‑month high, as traders positioned themselves for potential policy shifts.

Bond Yields

Government bond yields experienced a noticeable easing. The 10‑year yield fell from 6.25 % to 5.90 % following the RBI’s pre‑meeting commentary. The 7‑year yield, which is closely watched by the RBI for its policy window, also slipped, indicating market expectation that the policy rate will be slashed by 50 bps.

Equity Markets

The BSE Sensex and NSE Nifty-50 saw a modest 0.8 % gain in the first hour of trading, buoyed by optimism about lower borrowing costs. Sectors most sensitive to interest rates – financial services, real estate, and infrastructure – led the rally. Investor sentiment indices such as the Volatility Index (VIX) edged down, signifying reduced risk appetite for volatility.

Expert Opinions

Dr. Kavita Sharma – RBI Economist

“A 50‑bps cut is consistent with our mandate to keep inflation within the tolerance band while ensuring that growth is not stifled. We are also mindful of the global monetary tightening cycle and will act in a calibrated manner.”

Anil Gupta – Chief Economist, Axis Securities

“While the cut will provide a short‑term boost to liquidity, we must keep an eye on the risk of a credit bubble. The RBI will need to tighten its stance again in the near future if inflation shows a persistent uptick.”

Ms. Meera Menon – Senior Economist, ICRA

“The cut is expected to improve the rupee’s competitiveness and reduce import costs. However, if global rates remain high, we may see continued pressure on the currency.”

RBI’s Recent Communications

In its latest Press Note, the RBI’s MPC highlighted that the “inflation trend remains above the tolerance band and the growth trajectory has slowed.” It also noted that the global economic environment has become more uncertain due to geopolitical tensions and rising commodity prices. The MPC’s minutes, released on June 5, were heavily focused on balancing the dual mandate of price stability and growth.

The RBI’s decision to lower the repo rate is not only a monetary policy move but also a signal to the markets that the central bank is ready to intervene proactively to address macro‑economic challenges. The 50‑bps cut is also expected to help reduce the rupee’s depreciation trend, support the imports sector, and potentially lower the cost of servicing sovereign debt.

Looking Ahead

While the rate cut is likely to provide temporary relief, analysts caution that the RBI’s policy cycle is in a “tightening–loosening–tightening” phase. Inflation could rise again if global commodity prices climb or if domestic supply chain disruptions worsen. The RBI’s next meeting in August will be crucial to assess the impact of the cut and decide whether further easing or tightening is warranted.

For now, Indian markets are cautiously optimistic, with investors and policymakers both awaiting the formal announcement on the RBI’s policy stance. The 50‑bps cut, if implemented, will be a significant step toward stabilizing the economy and setting the stage for a resilient growth trajectory in the coming fiscal year.

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[ https://www.businesstoday.in/markets/market-commentary/story/rbi-monetary-policy-will-rbi-opt-for-a-jumbo-50-bps-rate-cut-today-479245-2025-06-06 ]