RBI Monetary Policy Committee Meets; Third Consecutive Repo Rate Cut Expected
The Reserve Bank of India's Monetary Policy Committee (MPC) has begun its meeting, with a decision on interest rates expected June 6. Economists anticipate a third consecutive 25 basis points cut in the repo rate to 5.75%, driven by benign inflation and signs of an economic slowdown. With CPI inflation below RBI's target and moderating GDP growth, the central bank is likely to maintain an accommodative stance to support domestic growth amid global uncertainties.
Unpacked:
The repo rate is the interest rate at which the Reserve Bank of India lends money to commercial banks. Lowering the repo rate reduces borrowing costs for banks, encouraging them to lend more to businesses and consumers. This can stimulate economic activity, boost investment, and support growth, especially during periods of slow economic expansion.
The RBI is cutting rates because, in addition to low inflation, India is experiencing slower GDP growth and global economic uncertainties. Lower rates aim to boost domestic demand and investment, supporting economic recovery and stabilizing growth.
Recent decisions represent consecutive 25 basis point cuts, bringing the repo rate to its lowest since November 2022. Historically, rates have averaged around 6.37% since 2000, so current rates are relatively low, reflecting a more accommodative stance in response to slower growth and subdued inflation.
Risks include potential spikes in global food and energy prices, adverse weather affecting agricultural output, and renewed global financial volatility. Any sharp rise in inflation or external shocks could force the RBI to reconsider its accommodative policy to maintain price stability.