Though inflation is well below the targeted level of 4%, global uncertainty led by tariff war can change the inflation and growth dynamics going forward
FinTech BizNews Service
Mumbai, August 6, 2025: The Monetary Policy Committee (MPC) held its 56th meeting from August 4 to 6, 2025 under the chairmanship of Shri Sanjay Malhotra, Governor, Reserve Bank of India. After assessing the current and evolving macroeconomic situation, the MPC voted to maintain the policy repo rate at 5.50 per cent.
Let us know perspectives of the experts from the Securities, Investment Banking and Financial Advisory Services
Siddarth Bhamre – Head of Research, Asit C. Mehta Investment Intermediates Limited (ACMIIL):
“The impact of 100 bps point rate cut is still unfolding on the economy. Though inflation is well below the targeted level of 4%, global uncertainty led by tariff war can change the inflation and growth dynamics going forward. It's prudent to let the earlier rate cut transmission happen and mean time assess the global environment before taking further action on the rate front, hence RBI kept interest rate unchanged.”
Vikram Chhabra, Senior Economist, 360 ONE Asset
Since the last policy meeting, downside risks to growth have intensified, particularly following the US imposition of higher-than-expected reciprocal tariffs. At the same time, inflation prints have largely come in below market expectations, prompting the RBI to revise its inflation projections downward. However, the central bank opted to hold rates in the August policy to better assess the evolving growth-inflation dynamics.
Looking ahead, we see scope for a 25-bps rate cut in the next policy meeting. With upside risks to inflation appearing contained, supported by a favorable monsoon and healthy kharif sowing, the RBI may find room to continue prioritising growth.
Vinay Pai, Head of Fixed Income, Equirus Capital
After front loading 50 basis point in June policy, RBI held the rate at 5.50% rate with focus has been on monetary policy transmission there has been reasonable progress with 39 bps reduction in overall lending rates on the outstanding loans and 71 bps on fresh loans. The key policy announcement was the expectation of a strong decline in FY26 inflation to 3.1% (from 3.7%) led by Q2 and Q3, while a return to above 4% inflation by Q4 and further to 4.9% by Q1Fy27 has kept RBI from further accommodation.
RBI will continue to provide ample liquidity to ensure that banks transmit rates faster, and also enable the corporate bonds issuances pick up and provide impetus on growth, The GDP forecast at 6.5% is maintained for FY 26. The other headwind stems from external risk associated with the global uncertainty linked to tariff stands high which can impact the exports and impact pressure on currency. We therefore expect the markets likely to be in range bound with a upward sloping yield curve, further rate cuts will depend on global factors and change in growth outlook. For now, a closure on tariff negotiations will be the key to calm the currency markets and stem outflows especially in the debt segment.
Suvodeep Rakshit, Chief Economist at Kotak Institutional Equities
“The RBI kept repo rate unchanged in the August policy as it focused on inflation starting to increase steadily from 4QFY26 while acknowledging a much benign inflation trajectory in its estimates for the remainder of CY2025. We expect the RBI to keep liquidity adequately in surplus to ensure continued transmission of the rate cut cycle. We believe that the RBI will likely remain on a long pause as it focuses on the FY2027 inflation trajectory and growth impulses remaining steady. The bar for a dovish shift will be higher from here on and dependant on substantial downside to growth prospects.”
Hitesh Jain, Strategist, Institutional Equities Research, YES SECURITIES (India):
Markets Read RBI Pause with a Hawkish Tilt, Though October Cut Remains in Sight
In line with our expectations, the Reserve Bank of India (RBI) unanimously kept the policy rate unchanged at 5.50% while maintaining a neutral stance. The Governor’s remarks, however, did not reflect dovish undertones, with the FY26 real GDP growth forecast retained at 6.5%. Having frontloaded policy action in June, the RBI now appears inclined to assess the transmission of earlier measures to credit markets and the broader economy before introducing further changes. Bond markets interpreted the policy as mildly hawkish, with 10-year G-Sec yields rising. Going forward, the RBI will likely assess evolving external trade dynamics (read: Trump’s tariffs on India) and the actual Q1 FY26 GDP print.
GDP Growth Likely to Undershoot RBI’s Expectations
With Q1 FY26 GDP data due later this month, we anticipate that the growth reading will undershoot the RBI’s estimate of 6.5% by 20–30 bps, given that several high-frequency indicators show only patchy signs of revival. The Governor acknowledged that although rural demand remains resilient, urban consumption—particularly discretionary spending—remains subdued. Government capital expenditure continues to underpin growth, but private investment is still lagging. Industrial output has been weak in recent months and uneven across sectors. We also hold reservations about the RBI’s FY26 real GDP growth forecast of 6.5%.
Benign Inflation Not Seen Sustaining, RBI Cautious on Future Trajectory
With FY26 CPI forecasts being downgraded to 3.1% from the earlier 3.7%, the inflation outlook for FY26 appears more benign. However, CPI is expected to rise to 4.4% in Q4 FY26 and 4.9% in Q1 FY27, as base effects turn less favourable. It is important to recognize that the RBI’s policy decisions are inherently forward-looking. Although current real interest rates are elevated—around 240 basis points—seemingly providing room for further easing, more than one rate cut in the remainder of FY26 would substantially narrow real rates for FY27, potentially reducing them to around 50 basis points, which appears less tenable.
Uneven Economic Recovery to Prompt October Rate Cut, Multiple Cuts Unlikely Without Growth Shock
The central bank is likely to deliver a calibrated 25 bps rate cut in the upcoming October 2025 policy meeting, influenced by the uneven economic recovery and trade tensions. However, if growth significantly undershoots the RBI’s FY26 GDP estimate, the probability of two additional rate cuts increases meaningfully. Additionally, any easing by the Fed would provide further headroom for the RBI to act without significantly destabilising capital flows.
