RBI Seen Cutting Rates for Third Time as Inflation Remains Below Expectations

The Reserve Bank of India (RBI) is expected to cut interest rates for the third time as inflation remains below forecast. Retail inflation dropped to a near 6-year low of 3.16% in April, and economists expect the RBI to cut the repo rate to 5.75%. The RBI's monetary policy committee is set to meet on Friday to decide on the rate cut.

The Reserve Bank of India (RBI) is anticipated to reduce interest rates for the third time in a row, following a significant drop in inflation. Retail inflation in April declined to a near six-year low of 3.16%, prompting economists to predict a repo rate cut to 5.75%. The RBI's Monetary Policy Committee (MPC) will meet on Friday, June 6, to make the decision [1].

Economists are closely watching the MPC's insights on inflation and economic growth to gauge the duration of the easing cycle. The goal is to stimulate demand in India's growing economy, with a focus on consumption, investment, and global uncertainties [1]. The market consensus is for a quarter-percentage-point cut in the policy repo rate, which currently stands at 6% [1].

The recent GDP growth of 6.5% in fiscal 2025 has exceeded market expectations, but household demand remains a concern. The MPC's focus is likely to be on weak consumption and private sector investment, with external sector uncertainty also playing a role [1]. Inflation, measured by the Consumer Price Index (CPI), is below the target, giving the RBI room to consider deeper cuts [1].

Experts expect the RBI to provide lower inflation forecasts, as the global trade war has left the outlook uncertain. Despite the economic slowdown, the central bank is expected to maintain a cautious approach to avoid raising rate cut expectations [1]. The current growth forecast for FY26 is 6.5%, with inflation averaging 4% [1].

The Indian stock market is expected to open higher on Tuesday, June 3, 2025, supported by positive global cues and anticipation of the RBI's rate cut. Key stocks to watch include Britannia Industries, HCLTech, and Maruti Suzuki [3]. The market outlook is positive, but investors remain cautious, awaiting further economic data and policy decisions.

References:
[1] https://m.economictimes.com/news/economy/policy/rate-cut-expected-rbis-views-in-focus-with-economy-near-a-sizzle/articleshow/121554825.cms
[2] https://www.rprealtyplus.com/news-views/rbi-likely-to-cut-repo-rate-by-25bps-good-for-growth-say-experts-120211.html
[3] https://www.newindianexpress.com/business/2025/Jun/03/positive-start-likely-for-markets-ahead-of-rbi-interest-rate-decision