RBI Likely to Cut Repo Rate to 5.75% as MPC Meeting Kicks Off
Jaipur, Rajasthan, India – The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is meeting from June 4-6, and financial experts widely anticipate another cut in the repo rate. This would be the third consecutive reduction, potentially bringing the key interest rate down to 5.75%.
The current repo rate stands at 6.00%, following 0.25% cuts in both February and April 2025. This expected move aims to stimulate economic growth and comes amidst sustained efforts to keep inflation in check.
Why a Rate Cut is on the Horizon
Several factors are fueling the strong expectation of a rate cut:
- Controlled Inflation: India’s retail inflation dropped to 3.16% in April 2025, comfortably within the RBI’s target range. This provides ample room for monetary easing without immediate concerns about price stability.
- Boost for Growth: With inflation under control, the focus shifts to bolstering economic activity. Lower interest rates can encourage spending and investment, crucial for growth, especially after the January-March 2025 quarter saw 7.4% GDP growth, though overall FY25 growth was a four-year low at 6.5%.
- Expert Consensus: Leading financial institutions and economists are also pointing towards a cut. State Bank of India (SBI) even suggests a significant reduction of up to 50 basis points (0.50%) is possible in this meeting, with a total of 100 basis points (1%) cut over the current cycle. Bank of Baroda’s Chief Economist, Madan Sabnavis, and ICICI Securities’ A. Prasanna also foresee a 0.25% cut, citing accommodative policy and strong GDP growth.
How a Repo Rate Cut Benefits You
A reduction in the repo rate has a direct and positive impact on the financial lives of millions:
- Cheaper Loans: Expect home loans, car loans, and personal loans to become more affordable. Banks can borrow money from the RBI at a lower cost, and they typically pass these savings on to customers.
- Reduced EMIs: If you already have a loan with a floating interest rate, your Equated Monthly Installment (EMI) could decrease, easing the pressure on your monthly budget.
- Increased Purchasing Power: New borrowers will benefit from lower interest rates, which can encourage significant purchases and investments, thereby boosting overall demand in the economy.
However, there’s another side to the coin. Those who rely on interest income from fixed deposits (FDs) and savings accounts might see slightly lower returns.
Understanding the Repo Rate
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term money to commercial banks. It’s a vital tool used by the RBI to manage the money supply, control inflation, and influence economic growth.
The RBI decides the repo rate based on several key factors:
- Inflation Levels: If inflation is high, the RBI might raise the repo rate to curb it.
- Economic Growth: To stimulate the economy, the RBI can lower the repo rate, making borrowing cheaper and promoting investment.
- Market Liquidity: The availability of cash in the financial system also plays a crucial role in determining the repo rate.