Economists push for 50 bps cut to boost India's economic growth

Synopsis

With future price pressures appearing benign and credit demand subdued, some economists are advocating for an outsized 50-basis-point rate cut by the Monetary Policy Committee (MPC). This move aims to revive the credit cycle and boost economic momentum, potentially counterbalancing uncertainty.

Mumbai: Some economists are batting for an outsized rate cut-of half a percentage point instead of the customary quarter-as future price pressures appear benign and credit demand remains subdued.

Economists from the State Bank of India and Piramal Enterprises are advocating a 50-basis-point (bps) reduction in the policy rates, due to be announced after the latest bi-monthly review Friday morning, even though an ET survey of a dozen bankers and economists indicates a 25 bps cut.

One basis point is a hundredth of a percentage point.

Currently, the repo rate-or signaling rate-stands at 6% after the central bank reduced it twice this year, by 25 bps each in February and April.

Proponents of a larger rate cut by the monetary policy committee (MPC) believe doing so would revive the credit cycle and boost economic momentum.

"We expect a 50-bps rate cut in the June policy as a jumbo rate cut could act as a counterbalance to uncertainty," Soumya Kanti Ghosh, group chief economic advisor, SBI, wrote in his latest research report.

Similarly, Debopam Chaudhuri, chief economist, Piramal Enterprises said: "The MPC should consider a larger-than-expected 50 bps rate cut this time...A 50-bps cut now could help make up for that lost time and deliver a stronger boost to economic growth."

India's fourth-quarter gross domestic product (GDP) expanded at a faster-than-expected rate of 7.4% in the fourth quarter, lifting full-year growth to 6.5% and helping New Delhi retain the tag of the world's fastest-growing major economy. However, demand growth has been uneven, with now-eased regulatory curbs on unsecured loans denting retail credit demand.

Cheaper Credit
"Weak external and urban demand along with high real rates are a drag on growth," said a research report by ICICI Bank. "An additional 50bps rate cut would ensure lower borrowing costs and is a stimulus to push growth higher."

Justifying a bigger rate cut, SBI's Ghosh said inflation is expected to stay within the mandated legal band. His report stated that inflation would stay below the target inflation of 4% in FY26 until December, but may increase thereafter.

Since February, the consumer price index (CPI) has been below 4%. In the last monetary policy, the RBI had estimated consumer inflation at 4.2% for FY26.

"Lower food prices should drive CPI inflation to 3.6% in FY26 before it inches again to 4.1% in FY27, which opens up room for pushing repo rate to 5.5% implying real rate of 1.5% over FY27 and Q4FY26," said the ICICI Bank report.

SBI's Ghosh is of the view that a 50 bps reduction in the June policy could reinvigorate a credit cycle. Bank loans climbed 12.1% in 2024-25, lower than 16.3% the year before. SBI expects credit and deposits to advance in the range of 10%-11% during FY26.

Piramal's Chaudhuri said the MPC should consider a larger-than-expected 50 basis point rate cut this time.

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