RBI MPC Meet: Know Which Sectors Are Likely To Get Affected By Repo Rate Cut

RBI MPC Meeting June: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting is scheduled to begin on June 4. The central bank is expected to slash the repo rate further by 25 basis points (bps) in a bid to support growth amid easing inflation. The policy decision regarding a possible rate cut will be the third consecutive reduction in the repo rate since February 2025. It is also likely that the RBI might maintain the ‘accommodative’ monetary policy stance it has adopted.

If the RBI goes ahead with the rate cut, rate-sensitive sectors like consumer durables, financials, NBFCs, auto, housing finance, and consumption are expected to be affected. Notably, several factors, such as easing inflation, are likely to aid a rate cut. With the expected rate cut, the repo rate is expected to reduce to 5.75 per cent. Here’s a look at some sectors that are likely to be affected by the repo rate cut:

Banks And NBFCs

A repo rate cut is expected to provide banks access to cheaper credit, which in turn can improve the margins for non-banking finance companies (NBFCs). This can be even more beneficial for small finance banks, as they are likely to have a greater proportion of unsecured lending.

Anil R., senior research analyst, Geojit Investments, told Outlook Money that while NBFCs benefit from rate cuts, banks are likely to witness a contraction in net interest margins due to a delay in repricing deposits compared to loans.

“For banks, it (rate cut) typically leads to a contraction in Net Interest Margins (NIMs) due to the lag in repricing deposits compared to loans, which impacts profitability. In contrast, NBFCs generally benefit as they mostly lend at fixed rates, while their cost of borrowing declines with lower interest rates. This widens their margins and enhances profitability. Thus, while banks face short-term pressure on margins, NBFCs usually see improved earnings in a rate-cut environment,” Anil said.

FMCG And Consumer Durables

Ajit Mishra, SVP of research, Religare Broking, told Outlook Money that consumer durables are rate-sensitive as consumers often purchase such products (television sets, refrigerators, air conditioners) on credit. Lower borrowing costs for consumers are likely to boost demand for consumer durables.

“Consumer durables are interest rate-sensitive, as they are often bought on EMIs; lower borrowing costs make such purchases more affordable, boosting demand. Overall, rate cuts stimulate consumption, improve affordability, and enhance earnings potential for companies,” Mishra said.

Anil told Outlook Money that while the impact of a rate cut on the Fast Moving Consumer Goods (FMCG) sector may be limited, the broader economic impact can be favourable as a rate cut can ease credit conditions in the rural economy, which in turn can improve rural demand for FMCG goods.

“While the direct benefit of an interest rate cut to the FMCG sector may be limited, since these products are largely essential and less influenced by borrowing costs, the broader economic impact can still be favourable. A rate cut is expected to ease credit conditions in the rural economy, supporting both agricultural and non-agricultural spending, which in turn can stimulate rural consumption—a key driver of FMCG demand. It also benefits the supply chain, particularly dealers and retailers, by improving access to business credit, thereby enhancing inventory and distribution efficiency,” Anil said.

Automotive Sector

The current rate cut is likely to make vehicle loans relatively more affordable. Mishra told Outlook Money that the rate cut is expected to make vehicle loans more affordable in the entry-level and mid-range segments and boost two-wheeler demand, benefiting both the electric two-wheeler and four-wheeler segments.

“In the auto sector, lower interest rates make vehicle loans more affordable, especially in the entry-level and mid-range segments, boosting demand for two-wheelers and passenger vehicles,” Mishra said.

Housing Finance Sector

Mishra added that if the RBI cuts the repo rate, the housing finance sector is also likely to benefit, as more affordable credit can lead to potentially improved demand for real estate. On the other hand, a rate cut is also expected to lessen delinquencies in loan repayment for housing finance companies.

“In the housing finance sector, rate cuts are likely to reduce the EMI burden on consumers, thereby improving demand for housing finance players. They also help reduce delinquencies, as EMIs become more manageable for borrowers. Overall, rate cuts stimulate consumption and credit growth across both sectors by easing the borrowing burden and enhancing consumer confidence,” Mishra said.