RBI Expected to Cut Interest Rate by 25% on June 6 to Boost Economy

The Reserve Bank of India (RBI) is expected to lower its benchmark interest rate by 25 basis points on June 6, according to a survey of economists. This reduction is anticipated to be followed by another rate cut in August. The decision to lower the interest rate is driven by the need to support a sluggish economy, which saw its growth rate plummet from over 9% in the previous fiscal year to 6.3%. Additionally, inflation rates have remained below the RBI's target of 4.0%, providing ample room for rate cuts.

In a survey conducted between May 19 and May 28, a majority of economists (53 out of 61) predicted that the RBI would reduce the repo rate by 25 basis points to 5.75% during its meeting scheduled for June 4-6. Two economists anticipated a 50 basis point reduction, while the remaining six expected the rate to remain unchanged. Furthermore, over 80% of economists (47 out of 58) forecasted that the repo rate would be further reduced to 5.50% by the end of August. This prediction marks a significant increase from the previous month's survey, where only slightly more than half of the economists held this view.

The RBI's decision to lower interest rates is part of a broader strategy to stimulate economic growth. By reducing borrowing costs, the central bank aims to encourage consumer spending, business investment, and overall economic activity. This move is expected to have a positive impact on various sectors, including manufacturing, real estate, and consumer goods. Lower interest rates can make borrowing more affordable for businesses and individuals, thereby fostering economic growth.

The RBI's proactive approach to addressing potential economic risks is also noteworthy. The central bank has been cautious about the impact of global trade tensions and domestic economic challenges. By lowering the interest rate, the RBI aims to provide a buffer against these risks and ensure that the economy remains on a stable growth trajectory. The anticipated cumulative easing of 100 basis points is expected to be the shortest and shallowest rate-cutting cycle in over a decade for the RBI.

The RBI's decision to reduce the interest rate is also expected to have a positive impact on the financial markets. Lower interest rates can lead to increased liquidity, which can boost stock prices and other financial assets. The RBI's move is also expected to support the rupee, as lower interest rates can make domestic assets more attractive to foreign investors. This, in turn, can help stabilize the currency and promote economic growth.

Economists have noted that the RBI's actions are in line with global trends, where central banks are adopting accommodative monetary policies to counter economic headwinds. The RBI's decision to lower the interest rate is expected to have a positive impact on various sectors, including manufacturing, real estate, and consumer goods. Lower interest rates can reduce borrowing costs for businesses and individuals, thereby stimulating economic growth. The RBI's move to reduce the interest rate is also seen as a proactive measure to address potential risks to the economy. The central bank has been cautious about the impact of global trade tensions and domestic economic challenges. By lowering the interest rate, the RBI aims to provide a buffer against these risks and ensure that the economy remains on a stable growth trajectory. The RBI's decision to reduce the interest rate is expected to have a positive impact on the financial markets. Lower interest rates can lead to increased liquidity in the market, which can boost stock prices and other financial assets. The RBI's move is also expected to support the rupee, as lower interest rates can make domestic assets more attractive to foreign investors.