The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is all set to leave the policy unchanged in its policy announcement on August 6, after the intense monetary easing cycle, which has seen the repo rate cut ambassadorship of 100 basis points in the year 2025. With the six-member committee meeting at the end of August, economists and market players are hoping that some rates cut momentum would be taken away as the concern is not only that the central bank would stop with the rate cuts but also would take up a wait and watch approach with change in global dynamics.
The Easing Cycle to Date
In February 2025, the RBI began monetary easing aggressively and launched the cycle by reducing the repo rate by 25 basis points. This acted before another 25-base points reduction in the following month of April and another big reduction considerations of 50 base points in June by a total of 100 base points. The repo rate is now at 5.5 percent which is a sharp deviation away of its stance before which was in direct opposition.
June policy meeting was especially interesting, not only because of the more-than-anticipated reduction of 50 basis points, but also because policy changed the stance to impactful as opposed to accommodative. Such transition took most people aback as it happened within two months of adjustment of previous position. However, as Deutsche Bank's Chief Economist Kaushik Das notes, this reflects a prudent move by the MPC to prevent expectations of further aggressive easing.
Why a Pause is Expected
Several factors are converging to support the case for maintaining rates at current levels. CareEdge Ratings notes that as the RBI has already frontloaded rate reductions and sustained ample liquidity, perhaps, the MPC would wish to wait and see how the macroeconomic process is unfolding. The effects of the cut in past rates are yet to be fully realized and transmitted and will definitely need time to have a mark on the economy.
The global factors are also playing a very important role in molding the expectations. The hard-edge US Federal Reserve, the continuing trade tensions with the US and the recent appreciation of the US dollar index is giving good reasons to take it easy. This may apply further pressure on Indian rupee and any further easing may prove counterproductive.
A complex backdrop to monetary policy decisions has been a characteristic of the current global environment, which is marked by the increasing uncertainties about trade tariffs and the geopolitical tensions. The new US tariff policy has created another round of volatility in the global trade balance with central banks in every region revaluating their policy direction.
The Contrarian View
However, not all economists are aligned on the pause narrative. Soumya Kanti Ghosh, the group chief economic advisor of State Bank of India said he expects RBI to continue frontloading with the August policy cut being 25 basis points. The crucial point of his argument is that inflation has been brought under control, and it continues to stay in the tolerance range of the RBI in many months.
Ghosh cautions against a policy stance of narrowness by virtue of the fact that this can prove to be counterproductive in escalating output losses which are quite irreversible. He stresses that money policy is a lagging process and delaying the reduction until the inflation rises to a lower rate or the growth falls more obvious might lead to more grave and long-term economic harm.
Echoing a similar sentiment, Nishant Lakkar, the Founder & CEO of AAA Rating Consultants and Advisors (AAARCA) noted: “While the headline CPI inflation easing to 2.1% appears benign, Nishant Lakkar believes this disinflation along with sharp moderation in food inflation reflects deeper structural concerns. Although softening in CPI and food inflation points to supply-side normalization, it also signals a broader erosion in aggregate demand, particularly from rural and middle-income segments. The continued weakness in Index of Industrial Production (IIP) for over six months, despite frontloading of rate cuts and prompt policy actions, underscores tightening liquidity and fragile consumption fundamentals. As the festive season begins earlier this year, he expects the MPC to ‘continue’ to act swiftly and prioritize economic recovery over rising external headwinds as shielding domestic growth momentum becomes increasingly important in an uncertain global trade environment. Contrary to the prevailing narrative, Nishant believes the real ‘frontloading’ in rate cuts should begin now—when disinflation is entrenched, demand is sluggish, and the timing aligns perfectly with an early festive cycle.”
Inflation Estimation and Growth forecasts
The situation with inflation has been immeasurably agreeable to the policy considerations of RBI. Annual year-on-year growth of the Consumer Price Index (CPI) was measured in terms of headline inflation which hit its lowest since January 2019 at 2.1 percent in June 2025 compared to 2.8 percent in May. Retail inflation has been lower than the 4 percent benchmark since the beginning of the year even as of June.
Madan Sabnavis, Chief Economist of Bank of Baroda, predicts that the RBI will cut its inflation projection of FY2026 to about 3.5 percent as compared to the present one of 3.7 percent. This small change is attributable to the continued moderation in price pressures.
With regard to growth, the economists are expecting RBI not to change its FY2026 GDP forecast which stands at 6.5 percent, indicating the economy is unlikely to be affected by global headwinds.
Industry Perspectives
Market participants across sectors are presenting diverse views on the optimal policy path. Akhil Saraf, Founder and CEO of Reloy, makes a compelling case for continued monetary stimulus, stating: "With retail inflation at record lows, corporate investment lagging, and industrial output losing steam, a substantial rate cut is not just warranted, it's essential. Stimulus through lower interest rates can reignite demand, ease borrowing costs, and revive private sector confidence at a time when the economy needs a decisive push."
The real estate sector, particularly sensitive to interest rate movements, offers a more cautious perspective. Vimal Nadar, National Director and Head of Research at Colliers India, expects stability, noting: "Given the uncertain global economic outlook, volatile trade environment due to resetting tariffs, we expect the Central Bank to remain vigilant and keep the benchmark lending rate steady at 5.5%. The neutral stance is also likely to continue, signaling the end of easing monetary policy cycle." He adds that real estate developers and lenders are already benefiting from reduced financing costs, with prospective homebuyers starting to benefit from lower home loan rates as the market enters the festive second half of 2025.
Shrinivas Rao, CEO of Vestian, emphasizes the global context in his assessment: "As global trade dynamics evolve in response to recent US tariff measures, the RBI is likely to adopt a cautious stance in the upcoming MPC meeting. Amid global headwinds, maintaining the current policy stance would ensure financial resilience and bolster investor confidence." He suggests that continuing the current repo rate would provide stability, especially when domestic inflation is easing and growth momentum is gradually strengthening, while noting that future quarters may see rate reductions if headline inflation continues its downward trajectory.
Piyush Bothra, Co-Founder and CFO of Square Yards, provides a nuanced timeline perspective: "Given the front-loaded rate cut in June and ongoing global uncertainties, particularly the recently announced US tariffs, we expect the central bank to adopt a wait-and-watch approach and maintain the current 5.50% repo rate." He emphasizes that for property markets, this means interest rates are likely to remain stable, sustaining current momentum. Importantly, he notes that since previous rate cuts have yet to be fully transmitted, the RBI is expected to take a firmer stance with banks and NBFCs to ensure benefits reach borrowers. While ruling out immediate cuts, he keeps the door open for "a 25-basis point cut in the October meeting [which] remains on the table and could serve as a significant festive season stimulus for the housing market."
Policy Stance and Forward Guidance
The position of the monetary policy is likely to remain at the so-called neutral position having dropped out of the accommodative position in April and becoming the same in June. Such placement gives the MPC room to maneuver towards either side depending on the changing economic conditions, and it represents that the extremes in easing may soon be subsided.
CareEdge anticipates that the policy statement by the RBI would be dovish in tone and continue to be cautious in response to the changing global events. This moderate strategy is an indication of the necessity of the central bank to become sensitive to the developments into the countries but at the same time being vigilant as far as external factors is concerned.
Also Read: RBI Monetary Policy Committee Report 2025: A Sharper-than-Expected Cut
Outlook in the Lending Rates
With the repo rate on hold at 5.5 percent, the entire external reference benchmark lending rates pegged to the repo rate will also be maintained. Lenders, however, have the option to adjust interest rate on such loans linked to the marginal cost of fund-based lending rate (MCLR) which is, perhaps, having some space to adjust the rates subject to the cost of funds and market rates at which they were funded.
The August policy meeting is a turning point in the monetary policy course of India as the MPC is expected to focus on stability and evaluation rather than further intense easing.
