RBI's MPC likely to keep repo rate unchanged: Business Standard poll

Respondents expect downward revision in FY26 inflation forecast

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is expected to maintain the status quo at its three-day meeting starting August 4, 60 per cent of the respondents said in a Business Standard poll. However, all of them expect further reduction in the 2025-26 (FY26) inflation forecast — a key parameter for further rate action. 

As many as four out of the 10 respondents in the poll predicted a 25-basis point (bp) rate cut in the upcoming meeting. 

The committee will announce its policy review on August 6. The rate-setting panel cut the policy repo rate by 50 bps in June, following a 25 bps cut each in February and April, respectively. Before this, it was kept unchanged for 11 meetings in a row. 

“No point in committing a Type II error today by not cutting rates in August as inflation will continue to remain range-bound even in FY27,” said Soumya Kanti Ghosh, group chief economic advisor, State Bank of India. 

A Type II error occurs when the central bank fails to reject the null hypothesis, assuming that the inflation undershoot is temporary, and hence, does not cut rates. But in reality, inflation remains persistently low and the output gap continues to weaken, Ghosh said in a report. 

“A frontloaded rate cut in August could bring early Diwali/festivities…Even festival season is frontloaded in FY26…Empirical evidence suggests a strong pick up in credit growth whenever festival season has been early and preceded with a rate cut…,” he added. 

 

Ghosh had correctly predicted the 50 bps rate cut in the June MPC meeting even as the consensus was for a 25 bps cut.

  Those who see August pause, expect the next rate cut in October. 

“The reason why we still see higher chances of a rate cut in October is because by then the monsoon season is over and there will be clarity on food inflation outlook,” said Gaura Sen Gupta, chief economist, IDFC FIRST Bank. 

“Moreover, there will be more information on growth with the Q1FY26 GDP print which will be released at the end of August.  The GDP print will give a better idea of how private consumption and private investment trends are performing,” she added. 

RBI Governor Sanjay Malhotra had said during the June MPC meeting that the frontloaded rate cut of 50 bps, coupled with clarity on the liquidity front, was intended to send a strong signal to economic participants and help support consumption and investment by reducing borrowing costs. 

A majority of the economists see the terminal rate for the current rate cut cycle at 5.25 per cent or lower with some participants expecting cuts in October or December. 

Retail inflation, as measured by the Consumer Price Index (CPI), eased to 2.1 per cent in June, down from 2.82 per cent in May. This marked the lowest year-on-year inflation rate since January 2019, when it stood at 2.05 per cent, according to the finance ministry. The June reading also remained well below the RBI’s medium-term target of 4 per cent, extending the recent trend of subdued price pressures. 

All respondents expect the inflation forecast for FY26 to be revised downward as CPI prints indicate a softer inflation trend in the second half of the calendar year. As a result, the FY26 average is likely to be lowered from the June MPC projection of 3.7 per cent, they said. 

“With the recent CPI prints signalling a lower trajectory for the second half of this calendar year, the average for FY26 is likely to be pared from the MPC’s June 2025 guidance of 3.7 per cent,” said Aditi Nayar, chief economist, ICRA. 

All respondents, except one, expect the RBI to retain its FY26 GDP growth forecast at 6.5 per cent. While the respondents acknowledged that higher US tariffs on Indian goods was likely to present a downside risk, ongoing negotiations, they hope, could lead to a resolution by September. As such, the respondents believe it may be premature to revise the growth projection at this stage.