RBI may go for ‘jumbo rate cut’ of 50 bps on June 6, says SBI research report

The Reserve Bank of India could announce a major repo rate cut of 50 basis points in its upcoming Monetary Policy Committee (MPC) meeting on Friday, June 6, as per a report by SBI Research.

The central bank’s Monetary Policy Committee (MPC), which sets the rates, will start its deliberations on June 4 and announce the decision on June 6. The MPC holds bi-monthly meetings to review India’s monetary policy.

"We expect a 50-basis point rate cut in the June 25 policy as a jumbo rate cut could act as a counterbalance to uncertainty," the report titled 'Prelude to MPC Meeting - June 4-6, 2025' stated.

The report, authored by SBI’s Group Chief Economic Adviser Soumya Kanti Ghosh said the banking system is currently facing surplus liquidity conditions. This means that banks have more money than they can lend. This is why banks have been lowering the interest they pay on savings accounts and fixed deposits.

Even though banks have extra liquidity, consumers and businesses are still not borrowing enough. So, SBI expects the central bank to cut the repo rate even further to push more money into the economy and kickstart the credit cycle.

The report suggests that the total rate cut during the current easing phase can hit 100 basis points. The RBI cut the repo rate by 25 basis points after both April and February MPC meetings, bringing it down to 5%.

The six-member MPC, headed by RBI Governor Sanjay Malhotra, also decided to change the stance from neutral to accommodative in its April policy.

"The cumulative rate cut over the cycle could be 100 basis points," the report stated.

The research report said that following the 50-bps repo rate cut by the RBI in February and April 2025, many banks have recently reduced their repo-linked external benchmark-based lending rates (EBLRs) by a similar magnitude.

Now, around 60.2% of the loans are linked to external benchmark-based lending rates (EBLR), and 35.9% are linked to the marginal cost of funds-based lending rate (MCLR).

While the MCLR, which has a longer reset period and is referenced to the cost of funds, may get adjusted with some lag, it said.

"We believe for the first time, liabilities are getting repriced faster in a rate-easing cycle. Banks have already reduced interest rates on savings accounts to a floor rate of 2.7%. Also, fixed deposits (FDs) rates have been reduced in the range of 30-70 bps since February 2025," the report said.

Transmission to deposit rates is expected to be strong in the coming quarters, it added.

The report noted that commercial banks' credit growth slowed to 9.8% as of May 16, 2025, against last year's growth of 19.5%.

Inflation and economic growth

SBI has reduced its Consumer Price Index (CPI) inflation estimate for the financial year 2025-26 (FY26) to around 3.5%, citing above-normal monsoon forecast by the India Meteorological Department (IMD) and declining crude oil prices as the factors, among other things.

The report stated that consistent growth of the country’s economy must be the primary objective of monetary policy, indicating support for the repo rate cut.

India’s economy grew by 7.4% in the fourth quarter of FY25, after growing 8.4% in Q4 FY24. For the full fiscal year, India’s GDP grew by 6.5%. The growth in Q4 was driven by increased capital formation, which grew 9.4% YoY.