RBI could carry out jumbo rate cut of 50bps: SBI research report

The Reserve Bank of India (RBI) could go for a ?jumbo rate cut? of 50 basis points on Friday, said SBI research report. The sharp moderation in CPI inflation, hitting a 67-month low of 3.34% in Mar?25 due to sharp correction in food inflation bodes well for lowering the average CPI headline forecast for FY26 below 4% now, the report stated. Nominal GDP growth is expected to be in the range of 9-9.5% for FY26 (Budget: 10%), signifying a Goldilocks period to slash the policy rates given the low growth and low inflation.

With multi-year low inflation in March and benign inflation expectations going forward, we expect rate cuts of 75 basis points in June and August (H1) and another 50 bps cut in H2 i.e. cumulative cuts of 125 bps going forward while 25 bps rate cut has already been initiated in Feb?25 (that could put the terminal Rate at ~5.0%-5.25% by March 2026), said the report from the State Bank of India?s Economic Research Department. However, a jumbo cut of 50 bps, could be more effective than secular 25 bps tranches spread over the horizon, the report noted. RBI's rate-setting panel Monetary Policy Committee (MPC) will start deliberations on the next bi-monthly monetary policy on June 4 and announce the decision on June 6 (Friday). The central bank reduced the key interest rate (repo) by 25 bps each in February and April, bringing it to 6 per cent. The six-member MPC, headed by RBI Governor Sanjay Malhotra, also decided to change the stance from neutral to accommodative in its April policy.

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