The Reserve Bank of India (RBI) may implement a 50-basis point rate cut in its June Monetary Policy Committee (MPC) meeting to revive the credit cycle and mitigate economic uncertainty, according to a report by the State Bank of India (SBI) released on Monday.
The cumulative rate cut during the ongoing cycle could total 100 basis points, said Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.
“Domestic liquidity and financial stability concerns have eased. Inflation is expected to remain within the tolerance band. Preserving domestic growth momentum should be the primary policy objective, justifying a jumbo rate cut,” he noted.
With liquidity in sustained surplus, banks are repricing liabilities more rapidly amid the rate-easing cycle. Savings account interest rates have already been reduced to a floor rate of 2.70 per cent.
Fixed deposit (FD) rates have also been cut by 30 to 70 basis points since February 2025. SBI anticipates a strong transmission to deposit rates in the coming quarters.
India’s economy expanded by 7.4 per cent in Q4 FY25, down from 8.4 per cent in the same quarter last year. This growth was largely driven by a sharp rise in capital formation, which registered a 9.4 per cent year-on-year increase.
An above-normal monsoon forecast by the IMD, robust crop arrivals, and declining crude oil prices have led SBI to revise its CPI inflation estimate downward to 3.5 per cent for FY26.
Based on the latest RBI Annual Report, SBI expects higher household savings, adequate to support economic growth without creating demand-driven inflationary pressures in FY26.
The report also highlighted the strong performance of Indian banks, particularly public sector banks (PSBs), which recorded a 26 per cent year-on-year rise in profits. In comparison, private banks saw a 5.8 per cent increase.
System liquidity turned positive, standing at ₹1.2 lakh crore as of March 31. Factoring in the recent ₹2.68 lakh crore RBI dividend to the government, SBI projects core liquidity to reach ₹5.3 lakh crore by the end of June. Durable liquidity is likely to remain in surplus throughout FY26.
Against this backdrop, the report suggests that the RBI will need to strike a balance between managing contained inflation and preventing a slowdown in domestic growth.
“We expect that the RBI will proceed with a 50 bps rate cut to support growth,” the report concluded.
-IANS