RBI MPC (June) - Review

RBI MPC (June) - Review

Economy Report 06th June, 2025

RBI Monetary Policy : A Bold Move Amid Global Uncertainty

Key Rates
Key Highlights
Current (%) Previous (%)
 The MPC meeting outcome was above our expectations; RBI reduced the policy repo rate
under the LAF by 50bps to 5.50%. The decision was made unanimously to reduce the policy Repo rate 5.50% 6.00%
repo rate by 50 basis points. Reverse
Repo 3.35% 3.35%
 Consequently, the standing deposit facility (SDF) rate was revised to 5.25% from 5.75%, and Rate
the marginal standing facility (MSF) rate was revised to 5.75% from 6.25%.
MSF 5.75% 6.25%
 The monetary policy changed its stance from accommodative to neutral. A neutral stance SDF 5.25% 5.75%
means the central bank is neither committed to increasing nor decreasing policy rates.
 Real GDP growth for FY26 is projected at 6.5%. The RBI Governor said that growth projec-
tions remain unchanged from the previous assessment due to uncertainty in global sentiment.
GDP Growth Estimate
 The GDP growth forecast for Q1FY26 remained unchanged at 6.5%, Q2FY26 remained un-
Current (%) Previous (%)
changed to 6.7%, Q3FY26 remained unchanged to 6.6% and Q4FY26 remained unchanged
at 6.3%. Q1FY26 6.50% 6.50%

 The consumer price inflation forecast for FY26 was downwardly revised to 3.7% from 4.0%, Q2FY26 6.70% 6.70%
with the outlook for growth expected to improve and inflation to remain moderate. The con- Q3FY26 6.60% 6.60%
sumer price inflation forecast for Q1FY26 was revised downwards to 2.9% from 3.6%, Q4FY26 6.30% 6.30%
Q2FY26 was revised downwards to 3.4% from 3.9%, Q3FY26 was revised upwards to 3.90%
FY26 6.50% 6.50%
from 3.8%, and Q4FY26 remained unchanged at 4.4%. CPI headline inflation continued its
declining trajectory in March and April, with headline CPI inflation moderating to a nearly six-
year low of 3.2% YoY in April 2025.
 The RBI has decided to reduce the Cash Reserve Ratio by 100 basis points from 4% to 3% of Inflation Estimate
net demand and time liability. This will be done in a staggered manner through the course of Current (%) Previous (%)
the year in four equal tranches of 25 basis points. This CRR cut is to release 2.5 lakh crores Q1FY26 2.90% 3.60%
of liquidity in the system by the end of November.
Q2FY26 3.40% 3.90%
 The RBI governor has highlighted about easing asset quality pressure in unsecured loans Q3FY26 3.90% 3.80%
and credit cards. Also, improvement in collection and underwriting practices witnessed for
most lenders. Q4FY26 4.40% 4.40%
FY26 3.70% 4.00%

Our View
Today's monetary policy announcement from the Reserve Bank of India exceeded our expecta-
tions. The central bank reduced the repo rate by 50bps, marking the third consecutive rate cut and
the first time in a decade that such a substantial cut has been implemented in a single move. The
key takeaway from the meeting was the reduction in the CRR by 100bps, from 4% to 3%. This
significant move is expected to inject liquidity into the banking system by November and should
support credit growth across the banking system from Q2 onwards. The RBI appeared confident
in its ability to control inflation, which has dropped to a six-year low and is now below the 4% tar-
get. This trend has been supported by the easing of international commodity prices and a contin-
ued decline in food inflation, which has now seen six consecutive months of easing. However, the
central bank shifted its policy stance from "accommodative" to "neutral." This shift signals a more
cautious approach, as this comes just after the last meeting, the stance was changed to accom- Research Analyst
modative. The RBI refrained from upgrading its FY26 GDP growth forecast, citing ongoing global Abhishek D. Pandya

geopolitical uncertainties. Despite keeping its growth projection unchanged, the tone of the policy abhishekpandya@bpwealth.com
022-61596138
remains constructive. With high-frequency indicators showing resilience, fiscal metrics stable, and
both rural and urban consumption picking up, the RBI seems well-positioned to manage any
emerging risks. Our view is that the RBI will now adopt a wait-and-watch approach before
making further rate cuts. We also anticipate that other major global central banks might
take a similar pause before reassessing their policy paths.

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RBI MPC (June) - Review

Macro & Policy Outlook: Inflation, Growth, and RBI Forward Guidance

Inflation
• The consumer price inflation forecast for FY26 was downwardly revised to 3.7% from 4.0%.
• CPI headline inflation continued its declining trajectory in March and April, with headline CPI inflation moderating to a nearly six-year
low of 3.2% YoY in April 2025. This was led mainly by food inflation which recorded the sixth consecutive monthly decline.
• The near-term and medium-term outlook now gives RBI the confidence of not only a durable alignment of headline inflation with the
target of 4 per cent, as exuded in the last meeting but also the belief that during the year, it is likely to undershoot the target at the
margin.
• Inflation outlook : The inflation outlook appears favorable, with major components indicating subdued price pressures. Record
wheat production and higher output of key pulses during the Rabi season are expected to ensure ample supply of essential food
items. Looking ahead, the forecast of an above-normal monsoon, coupled with its early onset, bodes well for Kharif crop prospects.
Reflecting these developments, inflation expectations are on a moderating trend, particularly among rural households.

Growth
• Real GDP growth for FY26 is projected at 6.5%. The RBI Governor said that growth projections remain unchanged from the previous
assessment due to uncertainty in global sentiment.
• While inflation continues to remain elevated in several advanced economies, weighing on investor sentiment and global growth pro-
spects, there are emerging signs of stability.
• Reflecting the ongoing challenges, multilateral agencies have revised global growth and trade projections downward. However, mar-
ket volatility has moderated in recent weeks, evident from a rebound in equity markets, a softening dollar index, and easing crude oil
prices. Although gold prices remain elevated, these trends suggest a cautiously improving global risk environment.
• Growth outlook : Looking ahead, economic activity is expected to sustain its momentum in FY2025–26, driven by robust private
consumption and steady traction in fixed capital formation. Sustained rural economic activity is likely to support rural demand, while
the continued expansion of the services sector is set to aid the recovery in urban consumption. Together, these factors reinforce
confidence in a broad-based and resilient growth trajectory for the Indian economy.

Economy
• The MPC decided to change the stance from accommodative to neutral.
• Investment activity is expected to improve in light of higher capacity utilization, improving balance sheets of financial and non-
financial corporates, and government’s capital expenditure push.
• Trade policy uncertainty continues to weigh on merchandise exports prospects, while the conclusion of free trade agreement (FTA)
with the United Kingdom and progress with other countries is supportive of trade activity.
• Services sector is expected to maintain its momentum. However, spillovers emanating from protracted geopolitical tensions, and
global trade and weather-related uncertainties pose downside risks to growth.

Conclusion Statement
• After having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances,
monetary policy is left with very limited space to support growth.
• From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future cou rse of
monetary policy in order to strike the right growth-inflation balance.

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 RBI MPC (June) - Review

Individual Member Stance

Shri Sanjay Shri Saugata
MPC Malhotra
Dr. Poonam Gupta Dr. Rajiv Ranjan Dr. Nagesh Kumar
Bhattacharya
Prof. Ram Singh

Repo Rate  50bps  50bps  50bps  50bps 25bps  50bps

Stance Neutral

Repo Rate - Trend

Source : Bloomberg, BP Equities Research

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