With inflation easing and growth moderating, the Reserve Bank of India may deliver a third straight rate cut on June 6, as the MPC weighs global risks and domestic recovery
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is scheduled to meet on June 4, with its decision on the benchmark interest rate scheduled for June 6. After the central bank started a rate-cutting cycle in February and followed it up with another reduction in April, attention now turns to whether a third cut is on the cards.
Currently, the repo rate stands at 6%, and growing expectations suggest the central bank may ease rates again to shore up economic momentum amid a challenging global backdrop.
The expectations are mostly driven by two key factors: softening inflation and signs of economic slowdown. Consumer price inflation remained comfortably below the central bank's 4% target, while growth has shown signs of deceleration, partly due to external headwinds such as trade frictions stemming from recent US policy moves.
Many agencies have already downgraded India's economic growth for the financial year 2026. The RBI, in its April policy review, pegged growth at 6.5%, while institutions such as the World Bank, Morgan Stanley, Nomura and Goldman Sachs forecast an even lower range of 6.0–6.3%.
Minutes from the April MPC meeting revealed that all MPC members unanimously expressed the need to support growth in an uncertain external environment, despite healthy domestic conditions. Most MPC members pointed out that spillovers to domestic growth are from external channels and weak consumer as well as investor confidence. Governor Sanjay Malhotra also asserted that while a 6.5% growth will help India to maintain its fastest-growing major economy status, it still falls short of the country’s long-term ambitions.
India is on a path to achieve the Viksit Bharat or developed nation status by 2047. But to achieve this goal, India will require an average growth rate of 8% for the next two decades. India achieved a growth rate of 9.2% in FY24. However, its growth rate is estimated to have fallen to a four-year low of 6.5% in the last financial year, according to the government data released last Friday.
"While GDP growth for Q4 has surprised on the upside, we do not see this changing our view for the RBI to deliver another rate cut in its June policy as growth risks for FY26 continue to linger on," said Sakshi Gupta, Principal Economist at HDFC Bank, in a report.
Signalling a shift in approach, the MPC recently adopted an ‘accommodative’ stance, moving away from a neutral policy. An accommodative stance means the central bank is prepared to expand the money supply to boost economic growth.
Inflation data has added to the case for a cut. India’s headline inflation, measured by the year-on-year change in the Consumer Price Index (CPI), eased to 3.2% in April, marking its lowest level since July 2019. This is a slight moderation from March’s 3.3% and comfortably below the RBI’s upper tolerance limit.
“The benign inflation outlook and moderate growth warrant monetary policy to be growth supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions,” the RBI said in the annual report for 2024-25, which was released last month.
Dhiraj Nim, an Economist with ANZ Bank, pointed out that even though core inflation remains above 4%, much of the recent uptick is attributable to gold prices—something the RBI is likely to discount in its policy considerations.
HDFC's Gupta expects that, given global headwinds, the central bank will remain growth supportive and cut rates by 25 basis points (bps) on June 6. Nim also echoes the same projection, citing downside risks to both GDP and inflation projections.
"The RBI stands vindicated on growth, but risks from the outlook are not over," Nim added. Nim also noted that with the US dollar weakening, pressure on the rupee has eased, giving the RBI additional leeway to cut rates without risking capital outflows or exchange rate instability.
He says that the RBI is likely to maintain banking system liquidity in modest surplus—around 1% of net demand and time liabilities—to ensure that any rate cut translates effectively to lower borrowing costs.
Aditi Nayar, Chief Economist at ICRA, also sees a 25 bps rate cut forthcoming, followed by two more cuts over the subsequent two policy reviews.
Within the MPC, a tilt towards further easing appears to be taking shape as well. Nagesh Kumar observed that private investment intentions moderated in Q4 and warned that the ongoing trade war could weigh further on FDI inflows and private capital expenditure. Similarly, Saugata Bhattacharya flagged the risk of global tariffs dampening trade and growth, which could eventually spill over into India’s external sector and slow its recovery.
Kumar suggested a sharper 50 bps cut might be more effective than two smaller moves of 25 bps each. However, he also emphasised the need for a phased and cautious approach given the fluid global environment.
With inflation under control, growth moderating, and external risks looming large, the stage appears set for the RBI to consider another rate cut. While the decision may ultimately depend on global developments in the days ahead, market watchers are increasingly betting on a third cut to keep India’s growth trajectory on track.