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SBI's Forecast on RBI's Monetary Policy

New Delhi, June 2: A recent report from the State Bank of India (SBI) anticipates a substantial 50-basis point reduction in interest rates during the upcoming RBI Monetary Policy Committee (MPC) meeting. This significant cut is expected to stimulate the credit cycle and mitigate prevailing uncertainties in the economy.

Dr. Soumya Kanti Ghosh, the Group Chief Economic Adviser at SBI, indicated that the total rate reduction throughout this cycle could reach 100 basis points.

"Concerns regarding domestic liquidity and financial stability have diminished. Inflation is projected to remain within acceptable limits. The primary focus of policy should be to maintain domestic growth momentum, which justifies a major rate cut," he stated.

With liquidity currently in surplus, banks are quickly adjusting their liabilities in this rate-easing phase. Interest rates on savings accounts have already been lowered to a minimum of 2.70 percent.

Additionally, fixed deposit rates have seen reductions ranging from 30 to 70 basis points since February 2025. The report suggests that the transmission of these changes to deposit rates will be robust in the upcoming quarters.

India's economy recorded a growth rate of 7.4 percent in the fourth quarter of FY25, down from 8.4 percent in the same period the previous year. This growth was bolstered by a notable increase in capital formation, which grew by 9.4 percent year-on-year.

"The India Meteorological Department's forecast of above-normal monsoon, coupled with strong crop arrivals and falling crude oil prices, has led us to revise our Consumer Price Index (CPI) estimate down to 3.5 percent for FY26, with a downward bias," the report noted.

With expected higher savings as per the latest RBI Annual report, domestic finances are projected to adequately support anticipated growth, and we do not foresee demand-driven price pressures in FY26.

The risk to domestic financial stability has lessened. Public sector banks (PSBs) have reported impressive financial results, with profits soaring by 26 percent year-on-year, while private banks saw a modest increase of 5.8 percent.

As of March 31, system liquidity has shifted to surplus, amounting to Rs 1.2 lakh crore. With the RBI's dividend of Rs 2.68 lakh crore, we anticipate core liquidity to reach Rs 5.3 lakh crore by the end of June. Durable liquidity is expected to remain in surplus throughout FY26.

In this context, the RBI's response must balance the need to control inflation with the potential slowdown in domestic growth and the necessity to support investments.

"We predict that the RBI will proceed with a 50 basis point rate cut to bolster growth," the SBI report concluded.