GoodReturns Poll: RBI May Cut Repo Rate By 25 Bps On Jun-6; Will Sanjay Malhotra Revise Inflation, GDP Target?

The Reserve Bank of India (RBI) will likely cut the repo rate by another 25 basis points on June 6, led by cooling inflation and benign liquidity conditions, according to a poll of 42 economists conducted by GoodReturns, who also predicted the central bank will revise its trajectory for GDP growth and CPI for this fiscal year.

In this unprecedented time of a tit-for-tat trade war initiated by U.S. President Donald Trump and other geopolitical tensions, the RBI is widely expected to cut borrowing costs, primarily driven by inflation data that was reported way below the central bank's mid-term target of 4 percent in April.

The six-member monetary policy committee (MPC), led by Governor Sanjay Malhotra, will begin its three-day policy meeting from June 4 to June 6. Along with the outcome, some commentary related to the U.S. tariffs' impact on India is expected from the RBI at the June 6 meeting.

"We do believe that given the rather benign inflation conditions and the liquidity situation, which has been made very comfortable through various measures of the RBI, the MPC would go in for a 25 bps cut in the repo rate on the 6th," Madan Sabnavis, Chief Economist at Bank of Baroda, said.

Approximately 98 percent of 50 economists across India predicted a rate cut of 25 basis points on June 6, which would take the repo rate to 5.75 percent. This would be the first repo rate below 6 percent since September 2022 and also the third rate cut of 2025.

A total of 37 economists estimated a 25 basis point rate cut, while two economists expect a 50 basis point rate cut. The monetary policy stance is forecasted to be 'accommodative' by the majority of them.

Shilan Shah, Deputy Chief Emerging Market Economist at Capital Economics, said, "With headline inflation now at a multi-year low, the Reserve Bank of India (RBI) is poised to cut the repo rate by another 25bps (to 5.75 percent) at the conclusion of the MPC meeting on Friday 6th June."

The MPC had trimmed the repo rate by 25 basis points to 6 percent in the April 2025 policy, a second rate cut from the 25 bps cut in the February 2025 policy. YTD, RBI has reduced interest rates by 50 basis points. RBI kept repo rate unchanged from February 2023 to December 2024 before easing its policy stance and rates.

India's Growth Story To Continue

A revision in the CPI and GDP targets from the RBI for FY26 was anticipated in the poll, since both the economic indicators have surpassed their previous targets.

"The commentary on both growth and inflation will be important as there are expectations of revisions in their forecasts for both the parameters," Sabnavis from Bank of Baroda added.

India's latest gross domestic product (GDP) surged to 7.4 percent in Q4FY25, reclaiming the 'fastest-growing' economy title in the world. The GDP growth rate surpassed market estimates of 6.7 percent and the RBI's target of 7.2 percent for the fourth quarter of 2024-25.

According to Rajani Sinha, Chief Economist, CareEdge Ratings, India's GDP growth for the fourth quarter of FY25 came in at 7.4 percent, significantly exceeding expectations and signaling strong economic momentum. This brings full year FY25 growth to 6.5 percent, which is in line with the second advance estimate of MOSPI. The Q4 GVA growth stood at 6.8 percent, driven by a significant uptick in sectors such as manufacturing, construction, and financial, real estate, and professional services.

However, Sinha believes the unevenness witnessed in the consumption recovery remains a critical monitorable going forward. The strength in rural demand is expected to continue on the back of favourable prospects for monsoon, healthy reservoir levels and upbeat agricultural output. However, the softness in urban demand continues to be an area of concern.

Inflation - A Cause To Worry Much?

Not really. India's consumer price index (CPI) eased sharply to 3.16 percent in the April 2025, the lowest print since July 2019. This is also the third consecutive month where CPI was below RBI's main objective of achieving 4 percent inflation.

"In terms of core projections, we expect RBI to modestly downgrade GDP projections and also reduce CPI inflation forecasts, with near-term inflation projections likely to be slashed materially. The incoming GDP data for Q1 2025 will marginally influence forecasts, but given the statistical quirks around the first quarter, we believe RBI is unlikely to materially change its GDP estimates just based on one quarterly GDP print," said Rahul Bajoria, India & ASEAN Economist at BofA India.

More Rate Cuts Coming:

Going ahead, some economists predicted two more rate cuts in August and October 2025 policy. If that is the case, RBI's repo rate could fall to 5.25 percent in 2025 alone. In terms of financial year, prediction of 75 basis points to 125 points rate cut is on the cards. .

"We anticipate the CPI inflation to average 3.5 percent in FY2026, with the prints for Q2 and Q3 sharply trailing the MPC's projections for these quarters, allowing for an additional 75 bps of rate cuts in this calendar year," adding Aditi Nayar, Chief Economist & Head-Research & Outreach at ICRA said, "A 25 bps rate cut appears forthcoming in the June 2025 policy, followed by easing of 25 bps each in the August and October 2025 policy reviews."