RBI Monetary Policy: SBI Research Bets On Sharp 50 Bps Rate Cut In June

As the Reserve Bank of India's Monetary Policy Committee is set to meet on Wednesday for its three-day meet concluding on Friday, SBI Research expects a 50-basis point rate cut this around as a 'jumbo rate cut' could act as a counterbalance to uncertainty.

"RBI response function has to balance call between contained inflation and possible slowdown in domestic growth and support investments. We expect that the RBI will continue with its rate cut by 50 bps to support growth," the report said.

This is because SBI Research believes that a large rate cut could reinvigorate a credit cycle. It cumulatively expects rate cut over the cycle could be 100 bps.

This is shortly after better than estimated GDP growth in the January-March quarter, even as India's retail inflation has slipped to its lowest in nearly six years.

SBI Research's expectations are against the large consensus of 30 economists polled by Bloomberg that expect the MPC to continue to cut rates for the third straight meeting by another 25 basis points to 5.75%.

Notably, one basis point is one-hundredth of a percentage point.

There are several reasons behind SBI's conviction such as global growth is expected to slow by 50 bps in 2025, trade volume growth to half from 2024 levels to 1.7% amid elevated geopolitical risk.

On the domestic front, liquidity in an extended surplus mode and liabilities are getting repriced faster in the current rate easing cycle. Banks have already reduced interest rates on savings accounts to floor rate of 2.70%.

Also, fixed deposit rates have been reduced in the range of 30-70 bps since February 2025. Transmission to deposits rates is expected to be strong in the coming quarters.

Further, receding domestic liquidity and financial stability concerns and inflation expected to stay within tolerance band, keeping the domestic growth momentum intact should be the main policy focus and provide the justification of a jumbo rate cut, the report said.