The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is concluding its meeting today, June 6, 2025, with Governor Sanjay Malhotra expected to announce the committee's decisions at 10:00 AM. A key point of interest is whether the MPC will announce a further repo rate cut. The financial community is keenly watching, with expectations of a potential rate cut to boost the nation's credit cycle and overall economic momentum.

Economic Context

India's economic growth is projected to be around 6.5% for the fiscal year 2024-25. While India remains the fastest-growing major economy, some reports suggest a moderation in GDP growth compared to previous years. The deceleration in pace of real GDP growth as compared to FY24, when the growth rate was 9.2% is evident. Concerns regarding a potential US recession, global economic deceleration, and possible negative effects from trade restrictions add complexity to the current economic landscape.

Inflation and Growth

The MPC's decisions are heavily influenced by the balance between maintaining stable inflation and promoting economic growth. CPI inflation is expected to stay comfortable in 2025-26, potentially remaining below the RBI's 4% target. The RBI has already reduced the repo rate twice this year by 25 basis points each time.

Market Expectations

Most experts anticipate a 25 basis points repo rate cut, reducing it from 6% to 5.75%. Some, like SBI Research, are even suggesting a "jumbo" rate cut of 50 bps in June itself to reinvigorate the credit cycle. Nomura projects a total 100 basis points cut in the repo rate this year, which is double the market consensus of 50 bps.

Potential Impacts of a Rate Cut

• Boost to Credit Flow: A rate cut would provide a timely boost to credit flow, especially for MSMEs and housing, while reinforcing growth momentum.
• Stimulation of Consumer Spending and Investment: Easing rates stimulates consumer spending and investment, potentially bolstering overall economic growth.
• Lower Borrowing Costs: A reduction in the repo rate would lower borrowing costs, potentially stimulating consumer demand and encouraging corporate investments.
• Impact on Home Loans: Further reductions in home loan EMIs are expected, potentially bringing EMIs under 7.75%.
• Impact on Stock Market: The markets are more likely to trade in green if the central bank decides to opt for a rate cut. Sectors like banking, real estate, and automobiles will remain in focus.

Factors Influencing the MPC's Decision

• Global Economic Headwinds: Global financial market volatility, geopolitical tensions, trade fragmentation, and supply chain disruptions.
• Inflation Levels: Retail inflation continues to stay below the lower tolerance level of 4 per cent.
• Domestic Liquidity: Domestic liquidity and financial stability concerns have receded.
• US Federal Reserve Policy: The US Federal Reserve has held its benchmark rate steady, leading to a narrowed interest rate differential between India and the U.S.

RBI's Stance

The RBI has shifted its stance from 'Neutral' to 'Accommodative', signaling a willingness to ease monetary policy to support growth. The main focus of the upcoming policy is expected to be keeping the domestic growth momentum intact.

The announcement by Governor Sanjay Malhotra is expected to be closely scrutinized for insights into the central bank's stance, GDP growth forecasts, and CPI inflation outlook. The decisions made will likely have significant implications for the Indian economy, influencing borrowing costs, investment, and overall economic growth.