Expectations from RBI Policy Meet tomorrow

The Reserve Bank of India (RBI) is widely anticipated to announce a 25 basis point (bps) cut in the repo rate, reducing it from 6.00% to 5.75%, during its Monetary Policy Committee (MPC) meeting on June 6, 2025. This would mark the third consecutive rate reduction this year, following similar cuts in February and April. Why a Rate Cut Is Expected? 1. Subdued Inflation Retail inflation fell to 3.16% in April, the lowest in six years and well below the RBI's 4% target. Core inflation remains muted, providing room for monetary easing. 2. Moderating Economic Growth India's GDP grew by 7.4% in Q4 FY2025, but full-year growth is projected at 6.5%, a four-year low. Indicators like credit growth, auto sales, and household income momentum are showing signs of deceleration. 3. Global Economic Uncertainties Ongoing geopolitical tensions and trade policy shifts, particularly from the U.S., are impacting global demand and investment flows. 4. Ample Liquidity and Credit Cycle Concerns The RBI has injected approximately ₹8.3 lakh crore into the banking system since January to ensure liquidity. Credit growth has slowed to 9.8% as of mid-May, prompting calls for measures to stimulate lending. While the consensus is for a 25 bps cut, some institutions, like SBI Research, advocate for a more aggressive 50 bps "jumbo" cut to invigorate the credit cycle. However, most analysts believe a 50 bps cut is unlikely at this juncture, favoring a measured approach to maintain policy flexibility. The central bank's forward guidance and any revisions to inflation and GDP forecasts will be closely watched for indications of future policy moves. $HDFCBANK