Will RBI’s MPC go for a 'jumbo' repo rate cut, as SBI suggests?

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is meeting for its June policy review, and markets are keen to know if a third consecutive cut in the benchmark interest rate will be announced. And, if so, how large it will it be.

Most economists and analysts expect a modest cut of 25 basis points, which would bring the repo rate down further from its current 6 per cent. But the State Bank of India (SBI) has stirred debate by suggesting the RBI could deliver a bolder move, a so-called "jumbo" cut of 50 basis points.

What a lower rate means

The repo rate is the rate at which the RBI lends to commercial banks, and it serves as the benchmark for borrowing costs — determining whether India's home loans, vehicle loans will get cheaper or more expensive. When the repo rate is lowered, banks often follow suit by reducing the interest rates they charge businesses and consumers; in effect making loans cheaper and encouraging spending and investment.

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Over the past few months, the RBI has already cut the repo rate twice, once in February and again in April. Both times by 25 basis points.

In April, it also shifted its policy stance from ‘neutral’ to ‘accommodative’. That shift signaled that the central bank is now prioritising growth, giving banks more leeway to pass on interest rate cuts to borrowers.

Rate transmission

In theory, this should help boost lending and consumer demand. But critics have pointed out that Indian banks have been slow to reduce their lending rates, limiting the full impact of the RBI’s efforts.

According to Anand Shendge and Pabitro Mukherjee, analysts at Bajaj Broking Research, the central bank’s "dovish" or growth-supportive approach is largely being driven by two factors: a clear slowdown in economic activity and a favorable inflation outlook.

India’s headline inflation, measured by the Consumer Price Index (CPI), has remained below the RBI’s medium-term target of 4 per cent, with the latest reading for April coming in at 3.2 per cent; the lowest since mid-2019. At the same time, economic growth appears to be decelerating, worsened by disruptions in global trade following recent US policy shifts.

Indian growth story

Despite these signs of slowing momentum, some argue that India’s growth story is still intact. Mandar Pitale, head of financial markets at SBM Bank (India), points out that the most recent GDP data showed India growing at an annual rate of 7.4 per cent, well above market expectations.

That strength complicates the RBI’s decision. While growth may be slowing, it is not faltering, which may justify only a small rate cut.

Still, Pitale expects the RBI to go ahead with a 25-basis point reduction at this meeting, and possibly another similar cut in August. He believes the RBI will then pause to evaluate the effects of its actions, effectively capping the easing cycle with a repo rate floor at around 5.5 per cent.

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He also flags other factors that could influence the MPC’s decision-making, including the narrowing gap between US and Indian interest rates, which affects the flow of foreign investments.

SBI team's call

The most aggressive call, however, comes from the SBI Research team, which argues that the RBI should go further and deliver a 50-basis point cut this week. Its case hinges on the idea that a bold move could help jumpstart credit growth, which has slowed considerably in recent quarters.

In a pre-policy report, SBI analysts wrote that such a jumbo cut could act as a counterbalance to growing uncertainty and give the economy a stronger push at a time when global conditions remain unstable.

GDP forecast

Meanwhile, expectations of slower growth in the months ahead continue to build. Shendge and Mukherjee from Bajaj Broking note that several global institutions have trimmed their forecasts for India’s GDP growth for the financial year ending March 2026.

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While the RBI is sticking to its projection of 6.5 per cent, other estimates have dropped to between 6 per cent and 6.3 per cent. While inflation is well within the central bank’s comfort zone, there is still external risk from trade tensions and volatile commodity prices. So RBI could have room to cut rates further without stoking inflation.

This view is reinforced by the fact that April’s inflation print marked a five-year low. The MPC’s accommodative stance makes it clear that supporting growth remains a priority for now.

Wait and watch

Looking ahead, the big question is whether this week’s rate cut, if delivered, marks the end of the current easing cycle. Market watchers are betting that one more cut is likely in August, after which the central bank may adopt a “wait and watch” approach.

Pitale suggests that by then, the RBI, led by Governor Sanjay Malhotra, may have reached the lower limit of how far it is willing to reduce the repo rate in this cycle.