RBI Rate Cut June 2025: RBI Likely To Lower Interest Rates by 25 bps

The Reserve Bank of India (RBI) is widely expected to cut interest rates by 25 basis points on June 6, marking its third consecutive reduction, according to a Reuters poll of economists. Another rate cut is also anticipated in August, as the central bank aims to support a slowing economy. This is the second MPC meeting of FY25.  In the annual report released by the apex bank, the RBI showed optimism of inflation being under control and declining from 4.8% to 4.2% in FY26. 

Economic Growth Slows

India’s economic growth slowed sharply to 6.3% in the last fiscal year, down from over 9% the previous year. Meanwhile, inflation has remained below the RBI’s 4.0% target, providing the central bank ample room to ease monetary policy.

Global Trade Tensions

Amid rising global tensions fueled by U.S. President Donald Trump’s trade war, major central banks around the world are expected to follow suit with policy easing. In the May 19-28 poll, 53 of 61 economists predicted the RBI would lower the repo rate to 5.75% in June, with some forecasting even deeper cuts if trade deals falter. Over 80% of respondents expect the rate to fall further to 5.50% by the end of August. This signals a total easing of about 100 basis points, the shortest and shallowest rate-cutting cycle in over a decade.

Mixed Signals

Despite rate cuts, lending rates have not eased substantially due to tight liquidity, noted Indranil Pan, chief economist at Yes Bank. However, bank deposit rates have declined, though it remains unclear if this reflects effective policy transmission or stress within the banking system.

Stock Market Optimism Persists

The poll also reflected optimism in the stock market, which is forecast to reach new highs by the end of 2025, even amid concerns about high valuations. Economists expect GDP growth to average 6.3% this fiscal year and 6.5% next year.

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