To cut or hold the policy repo rate — this could be a tough call for RBI’s Monetary Policy Committee (MPC) at its upcoming meeting.

While a section of the experts opine that the rate setting panel should take a breather after cutting the policy repo rate by cumulative 100 basis points (bps), the others think it should persist with its frontloaded rate cut cycle.

Those batting for a pause expect the earlier rate cuts to work their way into the economy.

The pause is likely in the backdrop of retail inflation remaining below the panel’s 4 per cent target for the fifth consecutive month in June (at 2.1 per cent), the uncertain impact on growth due to Trump’s 25 per cent tariffs on US’ imports from India and its weakening effect on the Rupee, and possibility of negotiating lower tariffs with the US.

Moreover, RBI Governor Sanjay Malhotra’s recent comments probably hint at a pause in the Monetary Policy Committee’s (MPC) upcoming meeting, scheduled from August 4-6.

In his comments at a fireside chat hosted by a business publication, Malhotra observed that the change in the monetary policy stance to “neutral” in the June bi-monthly policy review (from “accommodative”) along with the 50 bps repo rate cut indicates that the bar for further easing is higher than it would have been if the stance was accommodative.

The MPC has cut the policy repo rate thrice since February — 25 basis points (bps) each in February and April bi-monthly monetary policy review and by a jumbo 50 bps in June. The repo rate is currently at 5.50 per cent against 6.50 per cent before the February rate cut.

CARE Ratings’ Chief Economist Rajani Sinha and Senior Economist Sarbartho Mukherjee observed that the RBI had already frontloaded the rate cuts, anticipating the moderation in inflation. Hence, further rate cuts are unlikely unless growth concerns aggravate.

The rating agency’s economists noted that with the RBI having already frontloaded rate cuts and ensuring ample liquidity, the MPC may prefer to pause for now and assess how the macroeconomic landscape evolves.

Additionally, transmission of the previous rate cuts is still underway and could take some more time to show its effect on the economy.

Moreover, a hawkish stance from the US Federal Reserve, ongoing trade tension with the US and recent appreciation of the US dollar index could provide further reasons for adopting a wait-and-watch approach, as additional pressure on the rupee may emerge.

“Nonetheless, we expect the RBI’s policy statement to retain a dovish tone, while maintaining a cautious outlook on evolving global developments,” Sinha and Mukherjee said.

Barclays’ Economists, in a report, said they expect the RBI’s MPC to deliver a dovish pause in the upcoming 6 August policy, retaining the stance as ‘neutral’.

The MPC will likely revise down their forecast (of 3.7 per cent) for FY25-26 CPI inflation, but leave growth projection (6.5 per cent) unchanged, they added. The economists expect a final 25 basis point cut in October, taking the terminal rate to 5.25% .

Frontloaded cuts

SBI’s Chief Economic Adviser Soumya Kanti Ghosh said: “We expect RBI to continue frontloading with a 25 bps cut in the August policy. We are living in a frontloaded world. Tariff uncertainty frontloaded…better GDP growth frontloaded for now…CPI numbers in FY27 to continue to be frontloaded with even a sub 4 per cent number with new CPI series…even festive season is frontloaded in FY26.”

He underscored that empirical evidence suggests a strong pick up in credit growth whenever festive season has been early and has been preceded with a rate cut.

Aditi Nayar, Chief Economist, ICRA, said with the recent CPI prints signaling a lower trajectory for the second half of this calendar year, the average for FY2026 is likely to be pared from the MPC’s June 2025 guidance of 3.7%.

Further, the tariffs imposed by the US will pose a downside risk to GDP growth, while admittedly injecting volatility into the Indian Rupee.

“In our view, the balance remains slightly tilted towards a final rate cut of 25 bps in the August 2025 policy review,” she said.

Published on August 3, 2025