RBI MPC Meeting: What Indian Stock Market Expects from Central Bank
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is holding its three-day meeting to assess the interest rate outlook. Market analysts are anticipating a rate cut, with a 25 bps reduction seen as the most likely outcome. A cut would lower borrowing costs, potentially boosting consumer demand and corporate investments in sectors like banking, real estate, and automobiles.
RbiMpcStock MarketRate CutEconomic GrowthReal Estate NewsJun 05, 2025
The RBI has a history of bold 50 bps cuts during 2012, 2015, and 2020 to combat domestic slowdowns or provide substantial support for growth. However, the global economic landscape today is significantly different, leading analysts to temper their expectations. Over the past six months, the US Federal Reserve has maintained its benchmark rate at 4.25%–4.50%, following a brief easing cycle in late 2024. The Fed's cautious stance due to tariff-induced inflation pressures has narrowed the interest rate differential between India and the U.S. from 225 bps to 175 bps since December 2024.
Any aggressive rate cut by the RBI could further compress this spread, potentially triggering capital outflows and exchange rate pressures. However, there is a strong domestic case for easing. Private consumption growth has moderated, MSME credit expansion has slowed, and investment momentum needs a boost. Mahendra Patil, Founder and Managing Partner of MP Financial Advisory Services LLP, suggests a calibrated and forward-looking approach. A 25-bps cut now, with a clear commitment to support growth in future meetings, would be the most prudent path forward.
Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, emphasizes that the central bank will focus more on economic growth amid rising geopolitical tensions. “We expect the RBI to cut the rate this time. With significant geopolitical developments across the globe, promoting domestic businesses and manufacturing becomes increasingly important. The manufacturing sector remains capital expenditure (Capex) intensive. As a fund, we are particularly inclined towards sectors such as 5G infrastructure, defence, and auto ancillaries. A reduction in the RBI's repo rate would lower borrowing costs, encouraging companies to pursue significant capital expansions,” Sharma said.
Soft inflation data and moderate demand trends provide the RBI with room to act. However, global uncertainties, including US policy and external trade dynamics, could influence the tone of the policy statement, according to Pranay Aggarwal, Director and CEO of Stoxkart, a discount brokerage firm.
Market analysts predict that the Indian stock market will likely show a positive response if the central bank decides to opt for a rate cut on Friday, June 6. Sectors like banking, real estate, and automobiles will be in the spotlight. “If the Reserve Bank of India announces a rate cut tomorrow, I anticipate a positive response from the equity markets, particularly in rate-sensitive sectors such as banking, real estate, and automobiles. A reduction in the repo rate would lower borrowing costs, potentially stimulating consumer demand and encouraging corporate investments,” said Aggarwal.
The Indian stock market experienced volatility after the RBI's announcement in February. On February 7, 2025, the BSE Sensex slipped by 328 points, or 0.4%, reaching an intraday low of 77,730.37. Similarly, the Nifty 50 fell by 110 points, also down 0.4%, to settle at 23,493.60. Rate-sensitive sectors showed a strong response to the RBI's policy change. Both the Nifty Bank and Nifty Financial Services indices declined by more than 0.4% each. Meanwhile, Nifty PSU Bank dropped 0.8%, and Nifty Private Bank was down 0.4%. On the other hand, Nifty Auto rose by 0.6%, and Nifty Realty climbed 1%.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Frequently Asked Questions
What is the expected outcome of the RBI MPC meeting?
Market analysts are anticipating a 25 basis points (bps) rate cut from the RBI MPC to support credit growth and economic momentum.
How will a rate cut affect the Indian stock market?
A rate cut is expected to positively impact the Indian stock market, particularly rate-sensitive sectors such as banking, real estate, and automobiles, by lowering borrowing costs and stimulating consumer demand.
What factors are influencing the RBI's decision-making process?
The RBI is considering factors such as soft inflation data, moderate demand trends, and global uncertainties, including US policy and external trade dynamics.
What is the current interest rate differential between India and the U.S.?
The interest rate differential between India and the U.S. has narrowed from 225 bps to 175 bps since December 2024, due to the US Federal Reserve's cautious stance on interest rates.
What sectors are expected to benefit the most from a rate cut?
Sectors such as banking, real estate, and automobiles are expected to benefit the most from a rate cut, as lower borrowing costs can stimulate consumer demand and corporate investments.
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