The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is set to meet later this week, and analysts expect the Central Bank to cut the repo rate by 25 basis points (bps) for the third consecutive time. This move is anticipated due to inflation remaining below the median target of 4%. The RBI has already cut the repo rate by 50 bps until April this year, and it is projected to cut it by another 50 bps in the current fiscal year (FY26).
According to a Crisil note, bank lending rates have started to ease, which should support domestic demand. The note also predicts that improving domestic consumption will support industrial activity, driven by healthy agricultural growth, easing inflation, and income tax relief. Madan Sabnavis, Chief Economist at Bank of Baroda, agrees that the MPC will likely cut the repo rate by 25 bps due to benign inflation conditions and comfortable liquidity.
The RBI’s commentary on growth and inflation will be closely watched, as there are expectations of revisions in their forecasts. The Central Bank will also detail its analysis on how the global environment will affect the Indian economy, particularly with the tariff reprieve provided by the US set to end in July. The RBI has stated that it will continue to manage liquidity in sync with its monetary policy stance to keep system liquidity adequate.
In its 2024-25 annual report, the RBI noted that a benign inflation outlook and moderate growth warrant a growth-supportive monetary policy while remaining watchful of global macroeconomic conditions. The MPC’s April meeting saw a unanimous decision to reduce the policy repo rate by 25 bps to 6.0%, and the stance was changed from neutral to accommodative. Overall, analysts expect the RBI to maintain a dovish stance and support economic growth through monetary policy easing.