SBI research: RBI may go for 'jumbo rate cut' of 50 bps on Friday

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.

It further said a large rate cut could reinvigorate a credit cycle. The research report said that following the 50-bps repo rate cut by the RBI in February and April 2025, many banks have recently reduced their repo-linked EBLRs by a similar magnitude.

Now, around 60.2 per cent of the loans are linked to external benchmark-based lending rates (EBLR) and 35.9 per cent are linked to the marginal cost of funds-based lending rate (MCLR).

While the MCLR, which has a longer reset period and is referenced to the cost of funds, may get adjusted with some lag, it said.

Transmission to deposit rates is expected to be strong in the coming quarters, it added. The report noted that commercial banks' credit growth slowed to 9.8 per cent as of May 16, 2025, against last year's growth of 19.5 per cent.