RBI Governor Sanjay Malhotra said the MPC noted the headline inflation is lower than earlier projections due to volatile vegetable prices while the core inflation remained steady around 4 per cent.
Mixed views were expressed by top economists on the Reserve Bank of India’s (RBI) Monetary Policy Committee’s (MPC) decision to hold the repo rate at 5.5 per cent and maintain a neutral stance.
While some say the decision was as expected and one more rate reduction is expected this fiscal, there is also a view that rate cut by MPC was warranted given the evolving global situation.
Looking at the year ahead expected inflation and retaining the repo rate at 5.5 per cent is a misplaced focus on the part of the MPC in an evolving world, said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
“Despite sharply lowering its inflation forecast to 3.1 per cent from 3.7 per cent earlier, RBI’s decision to keep rates steady emanates from their focus on one-year-ahead expected inflation that’s looking comfortably above 4 per cent, while growth in their view has held up well, despite global uncertainty,” Arora said.
She also pointed out that the global landscape continues to shift towards disinflationary bias in Asia.
“We think going ahead downside risks to growth would be increasingly evident with new global resets and could still open up space for easing in the remainder of the year, even though the Governor seems to have raised the bar higher for further easing,” Arora remarked.
The MPC at the end of their three day meeting –August 4-6- decided to hold the repo rate-the rate at which the RBI lends to the banks-at 5.5 per cent and continued to maintain a neutral stand.
“After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.50 per cent; consequently, the standing deposit facility (SDF) rate shall remain unchanged at 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent.
"The MPC also decided to continue with the neutral stance,” RBI Governor Sanjay Malhotra said.
Malhotra said the MPC noted the headline inflation is lower than earlier projections due to volatile vegetable prices while the core inflation remained steady around 4 per cent.
“Inflation is projected to go up from the last quarter of this financial year.
"Growth is robust and as per earlier projections though below our aspirations.
"The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing.
"The impact of the 100 bps rate cut since February 2025 on the economy is still unfolding,” Malhotra explained on the rationale to hold the policy rate.
According to him, the gross domestic product (GDP) growth for 2025-26 is projected at 6.5 per cent and the consumer price index (CPI) inflation for 2025-26 is projected at 3.1 per cent.
Terming the MPC’s repo decision as a measured approach Dhiraj Relli, MD & CEO, HDFC Securities said further rate cut remains possible but likely postponed until October, contingent on sustained low inflation and evolving external pressures.
“For investors, close attention should now be paid to monsoon-driven food inflation, the timing and effect of phased CRR reductions, evolving global trade policy, and festive season demand—each of which could influence the trajectory of future rate actions and risk appetite across asset classes,” Relli said.
Credit rating agency Crisil Ltd’s Principal Economist Dipti Deshpande, Principal Economist is of the view that there will be one more rate cut by MPC this fiscal.
“A benign inflation outlook and risks from US tariff hikes to economic growth will be the key determinants,” Deshpande remarked.
“While inflation has fallen sharply in the last few months, the central bank has reiterated that they would be looking at inflation estimates for the quarters ahead.
"We project CPI inflation to rise above 4 per cent in Q4 FY26 and average above 4.5 per cent in FY27, given the low base of this year.
"This implies that next year we are looking at real rate of interest in the range of 1-1.5 per cent and it can even go lower.
"This limits the scope of any further rate cut in this cycle,” Rajani Sinha, Chief Economist, CARE Ratings said.
Venkatachari Jagannathan can be reached at venkatacharijagannathan@gmail.com