Will RBI Implement a 50 Bps Rate Cut to Tackle Uncertainty?
Click to start listening
Synopsis
Discover the insights from SBI’s recent report predicting a significant 50-basis point rate cut by RBI in June. This action could revitalize the credit cycle amid uncertainty. Learn how this move may impact the economy and financial stability in India.
Key Takeaways
- 50-basis point rate cut could stimulate the credit cycle.
- India's economy grew by 7.4 percent in Q4 FY25.
- Fixed deposit rates have decreased by 30-70 bps.
- Inflation is projected at 3.5 percent for FY26.
- Public Sector Banks (PSBs) saw a 26 percent YoY profit increase.
New Delhi, June 2 (NationPress) A recent report from SBI has forecasted a substantial 50-basis point rate cut in the upcoming June RBI MPC meeting. This significant reduction could potentially rejuvenate the credit cycle and serve as a stabilizing force amidst prevailing uncertainties.
According to Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, the total rate reduction throughout this cycle could reach 100 basis points.
“Concerns regarding domestic liquidity and financial stability have diminished. With inflation anticipated to remain within the acceptable range, maintaining the momentum of domestic growth should be the primary focus of policy, justifying a major rate cut,” he stated.
As liquidity remains in an extended surplus phase, liabilities are being repriced rapidly during this rate-reduction cycle. Banks have already slashed interest rates on savings accounts to a minimum of 2.70 percent.
Additionally, fixed deposit (FD) rates have seen a decrease ranging from 30-70 basis points since February 2025. The report indicates that the transmission to deposit rates is likely to be robust in the upcoming quarters.
India’s economy registered a growth of 7.4 percent in Q4 FY25, a decline from 8.4 percent during the same period last fiscal year. This growth was bolstered by a notable increase in capital formation, which saw a 9.4 percent YoY growth.
“The IMD's prediction of an above-normal monsoon, strong crop arrivals, and falling crude oil prices have led us to revise our CPI estimate to 3.5 percent for FY26, with a downward trend anticipated,” the report indicated.
With an expected increase in savings based on the latest RBI Annual report, domestic finances will likely be adequate to support the projected growth, and “we do not foresee demand-driven pressure on prices in FY26.”
The risk to domestic financial stability has decreased. Indian banks, especially Public Sector Banks (PSBs), reported yet another quarter of impressive financial results. Profits for PSBs surged by an astonishing 26 percent YoY, whereas private banks saw a modest increase of only 5.8 percent.
System liquidity shifted to surplus mode, totaling Rs 1.2 lakh crore as of March 31. With the RBI dividend of Rs 2.68 lakh crore, “we anticipate core liquidity of Rs 5.3 lakh crore by the end of June. Sustainable liquidity is expected to remain surplus in FY26.”
In this context, the RBI's response function must strike a balance between controlling inflation and addressing potential slowdowns in domestic growth while encouraging investments.
“We predict that the RBI will proceed with a 50 bps rate cut to bolster growth,” concluded the SBI report.
Point of View
It is crucial to acknowledge the potential impacts of RBI's anticipated rate cut on India's financial landscape. The SBI report highlights a proactive approach in addressing economic uncertainties while prioritizing growth. It is essential for policymakers to maintain a delicate balance between inflation control and fostering investment.
NationPress
08/06/2025
Frequently Asked Questions
What is the expected impact of the 50 bps rate cut?
The anticipated 50 bps rate cut is expected to rejuvenate the credit cycle and stabilize the economy amid uncertainties.
How is India's economic growth performing?
India's economy grew by 7.4 percent in Q4 FY25, supported by strong capital formation.
What does the SBI report say about inflation?
The SBI report suggests that inflation is likely to remain within the tolerance band, with a CPI estimate of 3.5 percent for FY26.
What are the current trends in bank interest rates?
Banks have lowered savings account interest rates to 2.70 percent, and fixed deposit rates have decreased by 30-70 bps since February 2025.
What is the status of bank profitability?
Public Sector Banks (PSBs) reported a 26 percent YoY increase in profits, while private banks saw a modest growth of 5.8 percent.
