The financial markets are bracing for a potential repo rate cut by the Reserve Bank of India (RBI) at its upcoming policy review on June 6 as inflation softens and liquidity remains ample. Experts believe it is the right time for policy easing, which could further boost growth and investment.

Laukik Bagwe, fund manager & head-fixed income at ITI Mutual Fund, said, “The system liquidity is expected to remain ample in Q1 and Q2 FY26, driven by the significant RBI dividend and a seasonal drop in currency in circulation. The RBI’s accommodative stance is likely to continue, with a 25-basis-point repo rate cut anticipated at the June policy meeting.”

He added that the central bank may slash the benchmark repo rate to 5.50% for the rest of the financial year, aiding credit flow and investment momentum. Bagwe also highlighted that headline inflation (CPI) eased to 3.16% in April and is expected to stay below 4% for most of 2025, giving the RBI enough room to revise its inflation target for FY26 from 4.00% to 3.80%.

According to a report from Bandhan Bank, “In India, CPI inflation turned soft with lower food prices and range-bound core inflation. We expect headline CPI to average close to 4% during FY26. Notwithstanding the Q4FY25 real GDP growth of 7.4%, the MPC will likely stay nimble with focus on growth as it draws comfort from low inflation.” The bank’s base case anticipates another 50-bps cut in the repo rate over the course of FY26, bringing the rate closer to the neutral range.

Vinayak Magotra, Founding Team, Centricity WealthTech, says, "Due to slowing growth and global uncertainties surrounding trade tariff policies, as well as inflation remaining below the RBI target of 4% and stable crude oil prices, we expect the RBI to reduce its policy rates by at least 25 basis points to support domestic demand. These measures could help stimulate growth and increase liquidity."

What does this mean for borrowers and savers?

Lower policy rates typically translate into cheaper loans, particularly those linked to external benchmarks like the repo rate. Adhil Shetty, CEO of BankBazaar.com, explained, “Following the last rate cut, lending rates had begun trending closer to sub-8%, especially for prime borrowers and refinance cases. Borrowers still paying significantly above market rates, typically 50 basis points or more, should review their options and consider switching.”

He noted that earlier this year, when the RBI announced a 50-bps cut, lenders passed it on in full to borrowers with repo-linked loans, offering instant relief.

However, for depositors, the picture is slightly different. Shetty said, “Depositors have seen rates hold steady, with favourable terms still available across select tenors. In a low-inflation environment, where CPI has stayed below the 4% mark for three straight months, it is an opportune time to reassess both borrowing and saving strategies.”

Analysts say the combination of lower inflation, strong GDP growth, and proactive monetary and fiscal coordination provides a strong base for sustained economic stability. “Robust fiscal buffers and proactive adjustments collectively reinforce India’s outlook for sustained macroeconomic stability and robust growth in FY26,” Bagwe added.

As the RBI prepares for its next policy meeting, markets and consumers alike will be watching closely for signals of further easing, a move that could shape both interest rate expectations and household financial planning in the months ahead.