The Reserve Bank of India’s Monetary Policy Committee (MPC) is widely expected to keep the repo rate unchanged at its upcoming meeting, scheduled for August 6.
RBI Expected to Hold Steady
After significant rate cuts earlier this year, the Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) is likely to maintain the current repo rate. This decision is anticipated to be announced on August 6, following a meeting held from August 4-6.
The MPC is also projected to retain its ‘neutral’ policy stance. This comes amid ongoing global uncertainties like trade tariffs and geopolitical tensions, alongside a moderation in domestic inflation.
Why a Pause is Likely
The RBI has already frontloaded rate cuts, bringing the repo rate down by 100 basis points (bps) this year. The current repo rate stands at 5.5 per cent, after reductions in February, April, and a larger 50 bps cut in June.
Economists suggest the MPC may now pause to assess the macroeconomic landscape. The full effect of previous rate cuts is still being transmitted through the economy and requires more time to become evident. Global factors, such as a hawkish stance from the US Federal Reserve, ongoing trade tensions, and the appreciation of the US dollar, also support a cautious ‘wait-and-watch’ approach.
A Different Perspective on Rate Cuts
While a pause is generally expected, not everyone agrees. Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, suggests the RBI should continue with a 25 bps rate cut in August.
He argues that inflation has eased considerably, remaining within the RBI’s target for months. Delaying further cuts could lead to deeper and more persistent economic damage, given that monetary policy changes operate with a lag.
Policy Stance Remains Neutral
The monetary policy stance is expected to remain ‘neutral’, a shift that occurred in the June policy from an ‘accommodative’ stance in April. This relatively quick change surprised many analysts.
Experts believe this shift reflects a prudent move by the MPC. It ensures that the larger-than-expected 50 bps repo rate cut in June did not create expectations of aggressive further easing in the near future.
Inflation and GDP Forecasts
The RBI may revise its inflation forecast downwards for FY2026. Madan Sabnavis, Chief Economist at Bank of Baroda, predicts a slight revision from 3.7 per cent to possibly 3.5 per cent.
Retail inflation, measured by the Consumer Price Index (CPI), dropped to 2.1 per cent in June 2025, its lowest since January 2019, and remained below the 4 per cent target for the fifth consecutive month. Meanwhile, the RBI is likely to maintain its real gross domestic product (GDP) growth forecast for the current year at 6.5 per cent.
Impact on Lending Rates
If the RBI leaves the repo rate unchanged at 5.5 per cent, external benchmark lending rates (EBLR) that are directly linked to the repo rate will also remain stable. This means no immediate change for many new loans.
However, lenders might still revise interest rates on loans linked to the marginal cost of fund-based lending rate (MCLR). These rates are determined by the banks’ own cost of funds and can be adjusted independently.
- The RBI’s Monetary Policy Committee is likely to keep the repo rate unchanged at 5.5 per cent.
- The ‘neutral’ policy stance is expected to be maintained.
- Inflation forecasts for FY26 might see a slight downward revision.
- The GDP growth forecast for the current year is likely to remain at 6.5 per cent.
- An unchanged repo rate means external benchmark lending rates will not change immediately.
This decision reflects a cautious approach by the central bank as it balances domestic economic needs with evolving global conditions.
