RBI might cut interest rates by 25bps this week
What's the story
The Reserve Bank of India (RBI) is expected to cut the key interest rate (repo) by 25 basis points for the third consecutive time. The move comes as part of efforts to stimulate growth here amid global economic uncertainties. The decision will be taken by RBI's Monetary Policy Committee (MPC), which will meet from June 4-6.
Rate adjustments
Recent rate cuts and their impact
The RBI had cut the repo rate by 25bps each in February and April, bringing it down to 6%. Following these cuts, most banks have also reduced their repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR). The MPC is led by RBI Governor Sanjay Malhotra.
Forecasts
Experts predict rate cuts
Madan Sabnavis, Chief Economist at Bank of Baroda, believes that given the current inflation conditions and liquidity situation, the MPC is tipped to go for a 25bps cut in the repo rate on June 6. Aditi Nayar from ICRA also expects monetary easing by the MPC as CPI inflation is expected to remain below 4% for most of this fiscal year.
Policy stance
Commitment to price stability
In its annual report, the RBI reaffirmed its commitment to achieving durable price stability, a key requirement for sustained high growth. The central bank also said it will conduct liquidity management operations in line with its monetary policy stance, and maintain system liquidity at levels sufficient to meet the requirements of productive sectors of the economy.