Almost 90% of economists and market participants believe that the Monetary Policy Committee (MPC) will press the ‘pause’ button in the upcoming policy meeting between August 4 and August 6, according to FE. In addition, all the 16 people polled believe that there will be no change in stance.
Rate cut unlikely
Anubhuti Sahay, head India, Economic Research at Standard Chartered Bank said, “We expect a hold in the repo rate in the upcoming MPC. We believe that if a rate cut is delivered now, real rates can drop below the historical lows of 100 basis points (bps) in FY27 as inflation is likely to move back towards 4.5% by March 2026.”
She added that unless the MPC is convinced that FY27 inflation will stay close to 4% and/or it sees increased downside risks to growth, a pause on rates might be more desirable.
“Given the extensive liquidity support already extended by the RBI, the central bank is expected to maintain a status quo on rates in the upcoming policy meeting,” Namrata Mittal, Chief Economist, SBI Mutual Fund said.
Only ICICI Bank and ICRA expect the repo rates to be cut by 25 basis points. “With the recent CPI prints signalling a lower trajectory for the second half of this calendar year, there is a likelihood of a final rate cut of 25 bps in the August 2025 policy review,” Aditi Nayar, Chief Economist at ICRA said.
Since February, RBI has reduced the repo rate by 100 basis points. In the last policy, the central bank delivered a larger-then-expected 50 bps rate cut bringing repo rate to 5.50% and also reducing the CRR by 100 bps starting September in four tranches which is expected to maintain conducive monetary conditions.
Participants expect the central bank to take a call on a rate cut only after monitoring the transmission of past rate cuts.
Inflation outlook may be trimmed
Majority expect a downward revision in FY26 inflation projections by 20-40 basis points. India’s consumer inflation softened in June, hitting a six-year low of 2.10%. In the previous policy, RBI revised FY26 inflation outlook downwards to 3.7% from the earlier projections of 4.0%.
“Given that the central bank needs to be slightly more cautious in terms of predicting very low numbers on inflation, I think the 3.7% may at least be brought down to about the 3.4%,” Indranil Pan, Chief Economist at YES Bank said.
Speaking at the FE Modern BFSI Summit, RBI Governor Sanjay Malhotra said that the bar for further easing is now higher, though a neutral monetary policy stance provides the flexibility of moving up or down, or pause. “Price stability is our primary mandate and history teaches us that high inflation, if volatile, undermines growth. While we have won a battle, the war against inflation is still going on.”
Few participants expect RBI to lower GDP guidance as well. “GDP estimate may also witness a 20 to 30 bps downward forecast as the economic scenario has become more volatile and uncertain compared to the previous policy,” Madhavankutty G, Group Chief Economist, Canara Bank said.
Experts are of the view that RBI will maintain the ‘neutral’ stance’, which will give them more flexibility going ahead. Moreover, they expect the policy to have a ‘dovish’ tone. Besides, market participants will keenly watch governor’s comments about liquidity management framework and transmission which has happened so far in lending and non-lending space.