RBI MPC meeting starts: Malhotra & co seen on the edge of a bold decision

The Reserve Bank of India’s Monetary Policy Committee (MPC) begins its crucial three-day meeting today in Mumbai to decide the course of India’s key interest rates. Chaired by RBI Governor Sanjay Malhotra, the committee’s decision will be announced on Friday, June 6, as inflation eases and expectations build for a significant policy shift.Inflation below 4%, setting the stage for potenial rate cutsIndia’s retail inflation has been steadily declining, crossing below the 4 per cent mark for the first time in months. Official figures from the Ministry of Statistics and Programme Implementation showed inflation rate eased to a six-year low of 3.16 per cent in April from 3.34 per cent in March. This marked decline has strengthened calls for the MPC to ease the monetary policy stance to support economic growth.A report by the State Bank of India (SBI) projects that the RBI could announce a 50 basis points (bps) reduction in the repo rate in this meeting. The bank argued that a sizeable rate cut at this point could revive the credit cycle and stimulate growth. SBI said, “We expect a 50-basis point rate cut in June’25 policy as a large rate cut could reinvigorate a credit cycle.” The report further suggested that total easing in this cycle could reach 100 bps.Monsoon showers to bring monetary relief? SBI bets on a likely 50 bps rate cut this JunePast RBI rate cuts and market expectationThis potential move would follow two consecutive rate cuts this year. In its last meeting in April, the RBI reduced the repo rate by 25 bps to 6 per cent from 6.25 per cent. Governor Malhotra said then, “After a detailed assessment of the evolving macroeconomic and financial conditions and outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 6 per cent with immediate effect.” This followed a similar 25 bps cut in February, bringing the rate from 6.5 per cent to 6.25 per cent.With inflation falling further and two rate cuts already in place, markets and economists watch closely to see if the RBI will take a bolder step with a 50 bps cut this time. Views remain divided on the best approach.Divergent views among economists on extent of RBI rate cutSome economists urge a sharp reduction to provide a stronger growth boost. Debopam Chaudhuri, Chief Economist at Piramal Group, told news agency ANI, “The MPC should consider a larger-than-expected 50 basis point rate cut this time.” He pointed out that “Rate transmission has only started to gain momentum after the policy repo rate was reduced to 6 per cent in April, as prior liquidity constraints had kept market yields high.” Chaudhuri believes a 50 bps cut now could make up for lost time and energise growth.He also noted the global monetary context, mentioning the US Federal Reserve’s expected easing. “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 said.On the other hand, Sonal Badhan, Economics Specialist at Bank of Baroda, favours a more cautious stance. She told ANI, “We anticipate the RBI will lower rates by 25 bps in this week’s announcement.” Badhan’s view is based on inflation moderation, expected to remain manageable, and a predicted normal monsoon easing food inflation pressures. She also noted that the RBI is likely to revise inflation forecasts for FY26 downward by about 10 bps.However, Badhan rejected the possibility of a 50 bps cut now. “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 said.MPC Policy: Inflation under control but external risks loom largeAdding to the dovish chorus, M. Govind Rao, a member of the 14th Finance Commission and Chairman of the Karnataka Regional Imbalances Redressal Committee, told ANI that “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.”The MPC will need to balance these domestic and external factors carefully. Inflation is under control, but global monetary trends, the monsoon’s impact on food prices, and capital flow risks add uncertainty to the policy decision.As the MPC concludes its meeting on June 6, all attention will focus on Governor Sanjay Malhotra’s announcement at 10 am. The RBI faces a difficult task of supporting economic growth while maintaining financial stability. Whether it opts for a bold 50 bps cut or a cautious 25 bps reduction, this decision will shape India’s monetary outlook for months ahead.