RBI's MPC minutes: Status quo in August hinged on tariffs, rate-cut outcome

Uncertainties over the impact of the United States’ (US’) tariffs on India, along with the ongoing transmission of past rate cuts, prompted the members of the Reserve Bank of India’s Monetary Policy Committee (MPC) to maintain the status quo during the August meeting, the minutes showed.

 

While some of the external members highlighted their concern over growth, the internal members cited the one-year headline inflation rate overshooting the 4 per cent target.

 

All the six members of the MPC unanimously decided to keep the policy repo rate unchanged at 5.5 per cent while maintaining the “neutral” stance.

 

“Uncertainty in external demand, driven by tariff and geopolitical uncertainty, remains the major drag on growth as it also hinders private investment intentions, which is yet to show visible signs of improvement,” said Sanjay Malhotra, governor, RBI, in the minutes.

 

Malhotra said monetary transmission, though hastened, was continuing in the midst of evolving uncertainties.

 

Deputy Governor Poonam Gupta, an internal member of the MPC, said heightened global uncertainties and structural factors seemed to be bigger constraints for new investment and consumption decisions. She was of the view that the cost or availability of funds was not deemed to be a material constraint to growth now.

 

“CPI (consumer price inflation) is likely to firm up above 4 per cent from Q4:2025-26 as the unfavourable base effects would come into play and move closer to 5 per cent in Q1:2026-27 even with moderate price momentum,” she said.

 

Rajiv Ranjan, another internal member, said the headline inflation rate was likely to overshoot the 4 per cent target by the fourth quarter of 2025-26 and further increase to 4.9 per cent by the first quarter of 2026-27.

 

“Given these risks, there is a strong case for monetary policy to wait for a more definitive signal about a sustained moderation in inflation before venturing into further policy easing,” Ranjan said.

 

He also said an additional rate cut now could reduce policy space should global or domestic risks materialise.

 

Observing that the growth outlook stayed challenging, external member Nagesh Kumar said sales growth had moderated, and private investment was not showing signs of picking up. “The credit offtake has also not happened in the expected manner, despite lower interest rates.”

 

Private-investment sentiment is affected by trade-policy uncertainties, according to Kumar.

 

“While the case for stimulating private investment and urban demand remains, and the benign inflation outlook provides policy space, we may wish to wait and watch as the transmission of the existing actions takes place and how the trade policy uncertainties play out before considering policy actions at the October meeting of the MPC,” Kumar said.

 

Ram Singh, another external member, said under normal circumstances there would be a case for a growth-supportive interest rate cut, given the benign inflation prospects. “However, the unusually high degree of uncertainty on both inflation and growth fronts calls for greater caution.”

 

“The interest rate decisions of the US Fed and other central banks in the coming months will also have a bearing on the feasibility of a further rate cut by the RBI and its quantum” Singh said.

 

External member Saugata Bhattacharya highlighted the fact that interest rates on fresh deposits had fallen more sharply than on fresh loans.

 

“Prima facie, this likely would have primarily been driven by cuts in wholesale deposits rates, due to the large liquidity surplus. Even factoring in the underlying deposit mix, this fall in deposit rates is of some concern regarding the accretion of domestic household savings, given my conjecture about restricted foreign savings (capital) flows into India, at least in the near future.”