RBI’s rate-setting committee start deliberations on bi-monthly policy

Mumbai: The RBI Governor Sanjay Malhotra-headed rate-setting panel on Monday started the three-day deliberations to decide the next bi-monthly monetary policy amid expectations of pause in the rate easing cycle.

The Reserve Bank of India (RBI) started the rate easing cycle in February and since then has reduced the short-term lending rate (repo) by 100 basis points in three tranches.

Governor Malhotra-headed six-member rate-setting panel -- the Monetary Policy Committee (MPC) -- is scheduled to announce the next bi-monthly policy rate on Wednesday (August 6).

Experts were of the opinion that the Reserve Bank may go in for a status quo this time and wait for more macro data after the announcement by the US to impose a 25 per cent tariff on Indian imports beginning August 7.

However, a section of industry players do hope for a 25 basis points rate cut on Wednesday.

Bank of Baroda Chief Economist Madan Sabnavis said the credit policy will not be based on the most recent developments of low inflation for June and the 25 per cent US tariff.

In June, he said, the policy already would have buffered in the 26 per cent tariff, which was the deferred rate in April.

“Therefore, the tariff per se may not really change the view on growth, though it would be interesting to see how the RBI looks at this number. There can be a slight downward revision in inflation projection for the year by 0.1-0.2 per cent, i.e. 3.5-3.6 per cent instead of 3.7 per cent,” Sabnavis said.

However, in the current context, the cost of oil for the economy will also be a consideration.

“Therefore, we do not expect any change of stance or policy rate this time. The tone will be more cautious with some comfort being drawn on the resilient growth front,” he pointed out.

CareEdge Ratings further said that given the incomplete transmission of the previous rate cuts, the RBI is expected to hold off on further easing, allowing time for the full impact of earlier measures to materialise.

The Consumer Price Index (CPI) based retail inflation has remained below 4 per cent since February. It was at 2.1 per cent in June.

The government has mandated the RBI to ensure inflation remains at 4 per cent with a margin of 2 per cent on either side.

The government has mandated the RBI to ensure inflation remains at 4 per cent with a margin of 2 per cent on either side.

Aditi Nayar, Chief Economist, Icra, opined that with the recent CPI prints signalling 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 per cent.

“Further, the tariffs imposed by the US will pose a downside risk to GDP growth, while admittedly injecting volatility into the INR. In our view, the balance remains slightly tilted towards a final rate cut of 25 bps in the August 2025 policy review,” Nayar said.

The Consumer Price Index (CPI) based retail inflation has remained below 4 per cent since February. It was at 2.1 per cent in June.

Mandar Pitale, Head, Financial Markets at SBM Bank India, said the RBI August monetary policy review is coming at the backdrop of uncertainties on tariff policy and their implication for growth and inflation.

The immediate macro impact of tariffs would be through the uncertainty and sentiment channel, as the timing and nature of any trade deal remain uncertain, he said.

“Even in case of an eventual deal, US tariffs that will finally get imposed on India are likely to be closer to the tariffs offered to other emerging market asian countries (15-25 per cent range) and will add to downside risk to growth,” Pitale said and added the current data backdrop makes a compelling case for accommodative action by the RBI.

On monetary policy expectations, Rohit Arora, CEO & Co-Founder, Biz2X & Biz2Credit opined that as India’s MSMEs brace for fallout from the latest US tariffs on exports, the timing of RBI’s policy response is crucial.

“These tariffs not only present uncertainty into external trade but also risk squeezing smaller exporters who are already grappling with tightening domestic liquidity. With the festive season approaching, a 25-basis-point rate cut could help MSMEs absorb external shocks, maintain credit access, and power job-creation,” Arora said.

Jash Panchamia, Executive Director, Jaypee Infratech Limited, said the RBI had adopted a neutral stance in its previous policy review, and it remains to be seen whether the central bank will go for a rate cut or maintain the status quo.

“With inflation currently at a six-year low, a 25-basis-point cut in the repo rate would be encouraging for the overall economy. The real estate sector, having already benefited from the previous three consecutive rate cuts, would see a further boost in demand and buyer confidence if another cut is announced,” Panchamia said.

Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution, opined that it is unlikely that the RBI will opt for another aggressive rate cut in the upcoming review.

“However, with inflation remaining below expectations, geopolitical tensions easing, and the domestic economy showing signs of resilience, a moderate 25 basis point cut remains a strong possibility,” he said.

The MPC consists of three RBI officials - Sanjay Malhotra (Governor), Poonam Gupta (Deputy Governor), Rajiv Ranjan (Executive Director) and three external members - Nagesh Kumar (Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi), Saugata Bhattacharya (Economist), Ram Singh (Director, Delhi School of Economics).