After reducing the repo rate by 100-basis points this year, the Reserve Bank of India’s (RBI) six member Monetary Policy Committee (MPC) is likely to maintain status quo in the upcoming monetary policy scheduled to be announced on August 6. The MPC is also expected to retain the policy stance as neutral. While the inflation projection for FY26 is likely to be revised downward, the RBI may retain its forecast for real gross domestic product (GDP) growth for the current year.
The upcoming Monetary Policy Committee’s (MPC) meeting, scheduled from August 4-6, is being held amid rising uncertainties around trade tariffs and geopolitical tensions, as well as moderation in headline inflation. Economists are of the view that the six-member MPC may pause in the upcoming policy, which will be announced on August 6, after frontloading a 50 basis points (bps) cut in the repo rate in June.
The RBI started cutting repo rate in February 2025 with a 25 bps reduction, followed by a similar cut in April, bringing the total cut between February and June 2025 to 100 bps. The repo rate currently stands at 5.5 per cent.
“With the RBI having already frontloaded rate cuts and ensured ample liquidity, the MPC may prefer to pause for now and assess how the macroeconomic landscape evolves. Additionally, transmission of the previous rate cuts is still underway and could take some more time to show its effect on the economy,” CareEdge Ratings said in a report.
“Moreover, a hawkish stance from the US Federal Reserve, ongoing trade tension with the US and recent appreciation of the US dollar index could provide further reasons for adopting a wait-and-watch approach, as additional pressure on the rupee may emerge,” it said.
State Bank of India’s group chief economic advisor, Soumya Kanti Ghosh, however, expects RBI to continue frontloading with a 25 bps cut in August policy.
“With inflation having decisively eased and remained within the RBI’s tolerance band for several months, maintaining a restrictive policy stance risks exacerbating output losses that are neither easily reversible. Monetary policy operates with lags, and postponing a rate cut until inflation falls further or growth weakens more visibly could result in deeper and more persistent economic damage,” he said.
Story continues below this ad
CareEdge expects the RBI’s policy statement to retain a dovish tone, while maintaining a cautious outlook on evolving global developments.
Will there be a change in the policy stance?
The monetary policy stance is likely to be maintained at ‘neutral’, having just changed in the June policy from ‘accommodative’ in April, said Kaushik Das, chief economist – India, Malaysia, and South Asia, Deutsche Bank AG.
The change in stance to neutral from accommodative within a span of two months came as a big surprise, but on balance, this reflects a prudent move on the MPC’s part to ensure that the larger-than-expected 50 bps repo rate cut in June did not result in expectations of further aggressive easing in the period ahead, he said.
Will there be a revision in GDP and inflation forecast?
According to Madan Sabnavis, Chief Economist, Bank of Baroda, RBI may revise downwards its inflation forecast for FY2026. In June policy, RBI projected consumer price index (CPI) inflation for FY26 at 3.7 per cent.
Story continues below this ad
“There could be a downward revision in inflation but it will not be very significant. It may be revised from 3.7 per cent to 3.5 per cent,” Sabnavis said.
Headline inflation, as measured by year-on-year changes in the all-India consumer price index (CPI), declined to 2.1 per cent in June 2025 — the lowest since January 2019 — from 2.8 per cent in May. The retail inflation remained below the 4 per cent target for the fifth consecutive month in June. Economists expect RBI to maintain its FY26 GDP forecast at 6.5 per cent in the policy.
What happens to lending rates if the repo rate is left unchanged?
If the RBI leaves the repo rate steady at 5.5 per cent, all external benchmark lending rates (EBLR) linked to the repo rate will not be changed. However, lenders may revise their interest rates on loans that are linked to the marginal cost of fund-based lending rate (MCLR).