The Reserve Bank of India’s Monetary Policy Committee (MPC) began its three-day deliberations on Wednesday, with expectations firmly pinned on status quo on interest rates amid steady economic indicators.

The meeting, which runs from June 3 to June 5, is likely to see the central bank maintain the repo rate at 5.25 per cent, according to most economists and market watchers. This would mark a pause after a series of rate cuts implemented throughout 2025.

Policy Continuity Expected

In the April 2025 review, the MPC had last trimmed the benchmark rate by 25 basis points. With inflation remaining within the comfort zone and growth holding steady, experts believe the central bank may prefer to hold rates steady for now to assess the impact of previous easing.

“While the door remains open for future cuts, current data does not strongly support an immediate reduction,” said a senior banker who did not wish to be named.

 2025: Year of Rate Easing

The RBI had undertaken a meaningful shift in its policy stance this year. In February 2025, the committee cut the repo rate by 25 basis points to 6.25 per cent — the first reduction in nearly five years. Subsequent reviews saw further easing: another 25 basis points in April, a larger 50 basis points cut in June, and a final 25 basis points reduction in December, bringing the repo rate down to the current 5.25 per cent.

These moves, totaling 125 basis points through the year, were aimed at supporting economic recovery while keeping inflation in check.

 Why RBI Adjusts Repo Rates

The repo rate remains the central bank’s primary tool to manage liquidity and inflation. When prices rise sharply, the RBI hikes the rate to make borrowing costlier for banks, which in turn pass on higher rates to customers. This slows down demand and helps cool inflation.

Conversely, during periods of slower growth, rate cuts make loans cheaper, encouraging consumption, investment, and overall economic activity. Banks can borrow from the RBI at lower costs and extend affordable credit to businesses and households.

 Biannual Schedule and MPC Composition

The MPC meets every two months to review monetary policy. The six-member panel includes three RBI officials and three external members nominated by the central government. Decisions are taken by majority vote, with the RBI Governor holding a casting vote in case of a tie.

The central bank had earlier released the schedule for FY2026-27, with six meetings planned. Wednesday’s gathering is the second of the financial year.

 Market and Industry Expectations

Bankers and industry bodies are closely watching the outcome. While lower rates generally support sectors like real estate, automobiles, and MSMEs, analysts caution that premature cuts could risk re-igniting inflationary pressures, especially with global uncertainties around commodity prices and geopolitical tensions.

Retail borrowers, particularly those with home and personal loans, have already benefited from the 2025 rate cuts, with lending rates easing across major banks.

 Looking Ahead

The MPC’s decision on June 5 will be accompanied by an updated macroeconomic projection, including growth and inflation forecasts for the coming quarters. Any signals on the future policy path — whether accommodative, neutral, or otherwise — will be keenly analysed by markets.

For now, the consensus remains that the RBI will prefer caution, keeping powder dry for potential action later in the year if needed.

As India’s economy navigates a complex global environment, the central bank’s balancing act between growth and price stability remains crucial for millions of borrowers and savers across the country.

Sensex Falls 400 Points as Auto, Bank Stocks Face Selling Pressure

Market sentiment weakens amid broader Asian selloff; FII outflows continue

Indian equity markets slipped into the red on Friday, with the Sensex declining 400 points to trade at 77,450 while the Nifty fell 130 points to settle around 24,200. The half-a-percent decline reflected broader weakness sweeping across Asian bourses, even as selective buying in pharma and IT counters provided some respite.

Selling Spree in Auto and Banking

The downturn was largely driven by heavy selling in auto and banking stocks, sectors that have traditionally anchored market movements. Analysts attributed the weakness to profit-taking after recent gains and concerns over global interest rate trajectories. Meanwhile, pharmaceutical and IT shares managed to attract investor interest, suggesting a defensive shift in market positioning.

The decline came as no surprise, given overnight weakness in American markets. The S&P 500 fell 0.38 percent, the Dow Jones lost 0.63 percent, and the Nasdaq slipped 0.13 percent on Thursday evening. Across Asia, the story was similar – South Korea's Kospi fell 1.05 percent, Japan's Nikkei dropped 1.05 percent, and Hong Kong's Hang Seng declined 1.24 percent.

Foreign Investors Turn Sellers

Underlying the market weakness was continued outflow pressure from foreign investors. On Thursday, FIIs sold shares worth ₹341 crore, continuing a pattern of net selling that has accumulated to ₹39,164 crore over the past month. In contrast, domestic institutional investors remained net buyers, purchasing ₹441 crore worth of shares on the day and ₹31,092 crore over the last 30 days.

Yesterday's Close Still Negative

Friday's decline built on Thursday's weakness, when the Sensex had lost 114 points to close at 77,845 and the Nifty slipped 4 points to 24,327. That day had seen strength in auto and realty stocks offset by weakness in FMCG, suggesting volatility across sectors.

What's Next

Market participants remain cautious as global cues continue to dominate local sentiment. Analysts expect support levels around 24,100 on the Nifty and 77,200 on the Sensex in the near term. However, the persistence of FPI selling and soft global growth signals suggest further downside risks unless sentiment shifts.

Traders are now eyeing inflation data and commentary from central banks globally for fresh directional cues. Domestic earnings season will also be critical in determining whether current valuations hold or face further compression.