RBI MPC meeting: Which way is repo rate likely to move this time, and by how much? Economists decode the signs

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is set to begin its two-day meeting in Mumbai, where they will assess the interest rate scenario. Economists are split on the extent of the rate cut that the central bank should announce on June 6. Some analysts advocate for a robust reduction of 50 basis points (bps) to stimulate economic growth, while others prefer a more cautious approach with a 25 bps cut, citing the need for macroeconomic stability and external risks.This difference in perspective arises from the changing macroeconomic environment, characterized by a notable decline in retail inflation, which has dropped below the 4 percent threshold. Meanwhile, the outlook for domestic economic growth remains positive. Nevertheless, factors such as global monetary trends, the potential impact of the monsoon on food prices, and capital flow dynamics continue to weigh on the decision-making process.Debopam Chaudhuri, Chief Economist at Piramal Group, advocates for a decisive action by the RBI, suggesting a 50 bps cut. In an interview with news agency ANI, Chaudhuri said, "The MPC should consider a larger-than-expected 50 basis point rate cut this time. Rate transmission has only started to gain momentum after the policy repo rate was reduced to 6 percent in April, as prior liquidity constraints had kept market yields high. A 50 bps cut at this juncture could compensate for lost time and provide a significant boost to economic growth."He also emphasised the favourable timing, as the US Federal Reserve is anticipated to initiate policy easing soon. "With the US Fed likely to start cutting rates shortly, concerns about diminishing yield differentials between the US and India are expected to lessen. Lower borrowing costs would enhance domestic growth prospects and solidify India's attractiveness as an investment hub, irrespective of the US debt spread," he remarked.Conversely, Sonal Badhan, an Economics Specialist at Bank of Baroda, advocates for a more cautious reduction of 25 bps. "We anticipate the RBI will lower rates by 25 bps in this week’s announcement. This expectation is grounded in the significant moderation of inflation, which is anticipated to remain manageable in the upcoming months. Additionally, with predictions of a normal monsoon, the pressure on food inflation should be limited," she told ANI.Badhan mentioned that the RBI is likely to adjust its inflation forecasts for FY26 downward by approximately 10 bps, thanks to better-than-expected results in the first quarter. However, she dismissed the possibility of a 50 bps reduction at this time. "We consider a 50 bps cut unlikely as the June rate cut is seen as a front-loading measure. The RBI will also exercise caution until it has a clear understanding of the monsoon's spatial distribution. Furthermore, with the US Fed likely to remain on hold until September 2025, narrowing interest spreads could influence foreign portfolio investment inflows and the Indian rupee. Therefore, a 25 bps cut seems more prudent," she clarified.In alignment with a dovish viewpoint, M. Govind Rao, a member of the 14th Finance Commission and Chairman of the Karnataka Regional Imbalances Redressal Committee, stated that there is ample room for the RBI to ease its policy further. "The inflation rate is comfortably within the target range, providing sufficient scope for a rate reduction. Given the uncertainties posed by tariff hikes and global volatility, it is appropriate to lower interest rates to stimulate higher investment," he told ANI.As the MPC wraps up its discussions on June 6, all attention will be directed towards the statement from Governor Sanjay Malhotra at 10 am. With inflation under control and a strong emphasis on investment-driven growth, the RBI is faced with a crucial task of balancing support for growth while ensuring financial stability.