RBI to cut rates by 25 bps on June 6, then once more in August: Poll

The Reserve Bank of India will cut interest rates on June 6 for a third consecutive meeting and once more in August to support a weakened economy, according to a Reuters poll of economists whose forecasts were largely unchanged from the last survey.

With economic growth cooling sharply to 6.3 per cent last fiscal year from over 9 per cent the year before and inflation staying below the RBI's 4.0 per cent target, the RBI has ample room to cut rates. Other major central banks were also expected to ease policy further amid rising global tensions fuelled by US President Donald Trump's trade war.

A strong majority of economists, 53 of 61, in a May 19-28 Reuters poll expected the RBI to cut the repo rate to 5.75 per cent at the conclusion of its June 4-6 meeting. Two respondents predicted a cut of 50 basis points and the remaining six expected no change. 

More than 80 per cent of economists, 47 of 58, forecast the key rate to end August at 5.50 per cent. That was an increase from a survey conducted last month where just over half had held that view.

"The global risks we are facing in terms of trade tensions are downside risks to global growth and, hence, to India's growth," said Dhiraj Nim, economist at ANZ and one of the few looking for two more cuts after an expected June 6 reduction.

"If domestic inflation is not an issue, then these risks should also lead to a stronger counter-cyclical policy response from the RBI."

Rates could drop more than what economists are currently expecting if a trade deal with the US fails to materialise.

For now, a total expected easing of just 100 basis points would mark the shortest and shallowest RBI rate-cutting cycle in over a decade. Meanwhile, the Indian stock market was forecast to hit a new high by end-2025 despite concerns about its lofty valuations, a separate Reuters poll found. 

That partly reflects a relatively upbeat view on the economy. The poll also showed gross domestic product (GDP) growth was expected to average 6.3 per cent this fiscal year, and 6.5 per cent next.

Indranil Pan, chief economist at Yes Bank, said the February rate cut did not translate into much easing in lending rates by banks due to tight liquidity.

Still, bank deposit rates have come down and it is unclear whether that reflects actual policy transmission or signs of stress in the banking system, he added.