As the Reserve Bank of India (RBI) gears up for its monetary policy review on August 6, economists remain divided on whether the central bank will continue lowering interest rates. However, the majority expect a pause, calling it a tactical move to assess the effects of previous rate cuts.
RBI Has Already Cut Rates by 100 bps
Over the last three meetings, the RBI has reduced the repo rate by 100 basis points. Some experts believe that with inflation falling and growth slowing, the central bank should continue easing policy to support demand.
Soumya Kanti Ghosh, Group Chief Economist at SBI, argued in favor of another cut.
“If inflation is expected to stay low even into FY27, there’s no point in delaying,” he said.
“An August rate cut could boost spending ahead of the festive season.”
Ghosh pointed out that when festive seasons are frontloaded—as expected in FY26—a rate cut tends to drive early consumer demand and credit growth.
Data Trends Offer Mixed Signals
Supporting the case for a pause is slowing industrial output, which dropped to a 10-month low of 1.5%, and a decline in credit growth, especially in housing loans.
Yet, inflation has stayed below projections, offering some space for monetary easing.
Cautious Tone Expected from RBI
Analysts from CareEdge Ratings believe the RBI may hold rates steady in August. They expect the central bank to:
- Maintain its 6.4% GDP growth forecast for FY26
- Slightly reduce its inflation outlook
- Opt for a “dovish hold”, keeping options open for future action
Geopolitical factors like uncertainty over U.S. tariffs also push the RBI toward a cautious stance.
Barclays Predicts Final Rate Cut in October
Aastha Gudwani, Chief Economist at Barclays India, echoed a similar view.
“We expect a pause in August,” she said.
“While conditions support easing, it’s not yet compelling enough to go for a fourth straight cut.”
She predicts a final 25-basis-point cut could come in October, with the RBI maintaining a neutral stance until then.
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