The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) commenced its three-day meeting in Mumbai on Wednesday, June 4, 2025, to deliberate on key policy interest rates. Chaired by RBI Governor Sanjay Malhotra, the committee is scheduled to announce its decision on Friday, June 6. This meeting occurs against a backdrop of steadily declining inflation and two previous repo rate reductions earlier in the year, fueling anticipation for a potential third consecutive cut.

A significant factor influencing the MPC's deliberations is the benign inflation environment. India's retail inflation eased to 3.16 per cent in April 2025, down from 3.34 per cent in March, according to official data from the Ministry of Statistics and Programme Implementation. With headline CPI inflation remaining consistently below the RBI’s medium-term target of 4 per cent, the MPC is expected to consider this favorable condition in its policy stance.

Economists are presenting varied perspectives on the quantum of the potential rate cut. Some, like Debopam Chaudhuri of the Piramal Group, advocate for a more aggressive 50 basis point (bps) reduction. Chaudhuri argues that such a cut could accelerate economic momentum, especially since rate transmission improved after the repo rate reached 6 per cent. He also noted that with the US Federal Reserve anticipated to ease rates soon, India has a window to act decisively. A report by the State Bank of India (SBI) also projects a 50 bps cut, suggesting it could reinvigorate the credit cycle and support overall economic growth, with the total easing during the current cycle potentially reaching up to 100 bps. Dr Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, emphasized that maintaining domestic growth momentum should be the primary policy focus, justifying a significant rate cut.

Others favor a more measured approach. Sonal Badhan of Bank of Baroda supports a 25 bps cut, citing moderated inflation, a forecast for a normal monsoon limiting food inflation pressure, and external uncertainties. Economist M Govind Rao also indicated room for rate cuts, pointing to inflation being well within the target and rising global risks, suggesting a rate reduction would be appropriate to trigger higher investment. Some industry experts also anticipate a third consecutive 25 bps cut, which would bring the repo rate down to 5.75 per cent.

The RBI has already reduced the repo rate by a cumulative 50 bps in 2025. In February, the rate was cut by 25 bps from 6.5 per cent to 6.25 per cent, followed by another 25 bps reduction at the April MPC meeting (held April 7-9), bringing it to the current 6.0 per cent. This series of cuts signals a shift in the RBI's stance from neutral to accommodative, reflecting an intent to inject liquidity and support growth, as highlighted by Bajaj Broking Research. This pivot is further reinforced by April's CPI inflation easing to its lowest level since July 2019.

The push for further monetary easing is also driven by concerns over a cyclical slowdown in GDP growth. While the RBI maintained its 6.5 per cent growth estimate for FY26 in its April policy, several rating agencies and global institutions have downgraded India’s GDP growth projections for the fiscal year to a range of 6.0 per cent to 6.3 per cent, citing external shocks such as trade disruptions. With inflation expectations anchored, moderating growth momentum, and persistent external vulnerabilities, the environment appears conducive for another rate cut to sustain India's growth trajectory.

Market participants are closely watching the MPC's decision. According to a Bank of Baroda report, India’s 10-year government bond yield may fall further if the RBI announces a rate cut larger than 25 bps, potentially ranging between 6.15% and 6.27% in June, albeit with caution due to rising US debt concerns hardening global yields. The SBI report also noted that with liquidity in an extended surplus mode, liabilities are repricing faster in the current rate-easing cycle, with banks having already reduced interest rates on savings accounts and fixed deposits by 30-70 bps since February 2025. Governor Sanjay Malhotra’s statement on Friday morning, expected around 10 am, is anticipated to set the tone for borrowing costs and investment sentiment in the months ahead.