RBI may go for 50 bps jumbo rate cut to counter uncertainty: SBI report

New Delhi: A new SBI report on Monday projected a mega 50-basis point rate cut in June’s RBI MPC policy, saying that a large rate cut could reinvigorate a credit cycle and act as a counterbalance to uncertainty.

The cumulative rate cut over the cycle could be 100 basis points, said Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

“Domestic liquidity and financial stability concerns have receded. Inflation is expected to stay within the tolerance band. Keeping the domestic growth momentum intact should be the main policy focus and provide the justification for a jumbo rate cut,” he mentioned.

With liquidity in an extended surplus mode, liabilities are getting repriced faster in the current rate-easing cycle. Banks have already reduced interest rates on savings accounts to the floor rate of 2.70 per cent.

Also, fixed deposit (FDs) rates have been reduced in the range of 30-70 bps since February 2025. Transmission to deposit rates is expected to be strong in the coming quarters, said the SBI report.

India’s economy grew by 7.4 per cent in Q4 FY25 as against 8.4 per cent growth in the same quarter last fiscal. From the expenditure side, the GDP growth of 7.4 per cent in Q4 was supported by a strong uptick in the capital formation, which registered a 9.4 per cent YoY growth.

“Above normal monsoon prediction by IMD, strong arrival of crops and decline in crude oil prices are revising down our CPI estimate to 3.5 per cent in FY26 with a downward bias,” said the report.

With higher anticipated savings based on the latest RBI Annual report, the domestic finances will be sufficient to finance the anticipated growth and “we do not expect demand-induced pressure on prices in FY26”.

Domestic financial stability risk has receded. Indian banks (particularly PSBs) exhibited yet another quarter of stupendous financial results. Profit of PSBs increased by a whopping 26 per cent YoY, while for private banks, it increased by only 5.8 per cent.

System liquidity turned to surplus mode and stands at Rs 1.2 lakh crore on March 31.. With the RBI dividend of Rs 2.68 lakh crore, “we are expecting core liquidity of Rs 5.3 lakh crore by June-end. Durable liquidity is likely to remain surplus in FY26.”

Within this backdrop, RBI’s response function has to balance the call between contained inflation and possible slowdown in domestic growth and support investments.

“We expect that RBI will continue with its rate cut by 50 bps to support growth,” the SBI report added.

IANS