The Reserve Bank of India’s Monetary Policy Committee (MPC) meeting will end tomorrow, and ahead of that, many industry leaders expect the rate-cut cycle that began in February to continue. While most of them are expecting a repo rate cut of 25 basis points (bps)—from the current 6 per cent to 5.75 per cent—State Bank of India (SBI) said that the RBI MPC may go for a “jumbo rate cut" of 50 bps.
According to Sankar Chakraborti, MD & CEO, Acuite Ratings & Research Limited, inflation slipped to 3.2 per cent in April this year, the lowest since July 2019, which signals a rare and favourable policy window.
"More importantly, inflation has remained below 4% for three straight months, indicating a sustained structural easing in price pressures rather than a fleeting dip...Moreover, while inflation forecasts appear favourable, the outlook remains vulnerable to shocks from monsoon variability, commodity price fluctuations, and supply-side disruptions. Against this backdrop, we anticipate a further repo rate cut of 25 basis points, bringing it down to 5.75 per cent," Chakraborti said.
Mandar Pitale, Head, Financial Markets, SBM Bank(India) Ltd, feels that the next MPC meeting in August will determine a further rate of 25 bps.
“The upcoming RBI MPC meeting is coming at the backdrop of a strong GDP growth print of 7.4 per cent, which was significantly higher than the market expectation of 6.8 per cent. While it is difficult to make forward-looking projections on global growth where significant uncertainties still exist, the latest domestic growth data suggest limited downside risks to growth. Therefore, we expect a 25 bp cut in policy rate at the June MPC meeting. This, coupled with the ongoing accommodative stance, will position MPC to react to any data surprises on either side. By adequate modulation in the systemic liquidity, RBI has ensured overnight rates hovering at the lower end of the LAF corridor in the recent past, thus effectively easing by 75 bp as against a 50 bp rate reduction till now in this rate reduction cycle. The lowering interest rate differential between US and India and its impact on overseas investments (FPI flows) in India and the mid to long term trajectory of the inflation factoring in adverse base effect (lower base increasing the YOY number) will weigh in MPC decisions as the policy rate goes further lower. Therefore, we expect one more 25bp cut in the next MPC meeting to be held in August, most likely ending the rate easing cycle with the Repo rate getting floored at 5.50 per cent, followed by a prolonged pause,” Pitale said.
