RBI monetary policy meet: Members begin deliberation amid tariff worries and easing hopes; experts split on rate cut call as MPC weighs inflation, US shocks

The rate-setting Monetary Policy Committee (MPC) of the Reserve Bank of India, chaired by Governor Sanjay Malhotra, began its three-day meeting on Monday to decide the upcoming bi-monthly monetary policy. The outcome will be announced on Wednesday (August 6), amid expectations of a pause in the rate-easing cycle and rising uncertainty over the impact of US tariffs, according to PTI.The RBI has cut the repo rate by a cumulative 100 basis points in three tranches since initiating the easing cycle in February. While most economists expect a status quo in this round, a section of industry voices continue to hope for a 25 basis point rate cut.Tariff clouds loom, but inflation data offers leewayBank of Baroda Chief Economist Madan Sabnavis said, “Since we are not an export-oriented economy, it is becoming advantageous for us because we are more dependent on domestic consumption.” He added that the policy would not be shaped by the latest developments alone.“The credit policy will not be based on the most recent developments of low inflation for June and the 25 per cent US tariff. In June, the policy already would have buffered in the 26 per cent tariff, which was the deferred rate in April,” Sabnavis said.“Therefore, the tariff per se may not really change the view on growth, though it would be interesting to see how the RBI looks at this number. There can be a slight downward revision in inflation projection for the year by 0.1–0.2 per cent, i.e. 3.5–3.6 per cent instead of 3.7 per cent,” he added, quoted PTI.According to Sabnavis, the rising cost of oil will also be a key consideration. “We do not expect any change of stance or policy rate this time. The tone will be more cautious with some comfort being drawn on the resilient growth front,” he said.Split views among economists and industryCareEdge Ratings said the central bank is likely to refrain from easing further, noting that “given the incomplete transmission of the previous rate cuts, the RBI is expected to hold off on further easing, allowing time for the full impact of earlier measures to materialise.”Icra’s Chief Economist Aditi Nayar said, “With the recent CPI prints signalling a lower trajectory for the second half of this calendar year, the average for FY2026 is likely to be pared from the MPC’s June 2025 guidance of 3.7 per cent.”“Further, the tariffs imposed by the US will pose a downside risk to GDP growth, while admittedly injecting volatility into the INR. In our view, the balance remains slightly tilted towards a final rate cut of 25 bps in the August 2025 policy review,” she added.SBM Bank India’s Head of Financial Markets Mandar Pitale said the review comes “at the backdrop of uncertainties on tariff policy and their implication for growth and inflation.” He added, “Even in case of an eventual deal, US tariffs that will finally get imposed on India are likely to be closer to the tariffs offered to other emerging market Asian countries (15–25 per cent range) and will add to downside risk to growth.”Pitale concluded that “the current data backdrop makes a compelling case for accommodative action by the RBI.”Industry wants support amid export headwindsRohit Arora, CEO & Co-Founder, Biz2X and Biz2Credit, said: “As India’s MSMEs brace for fallout from the latest US tariffs on exports, the timing of RBI’s policy response is crucial.”“These tariffs not only present uncertainty into external trade but also risk squeezing smaller exporters who are already grappling with tightening domestic liquidity. With the festive season approaching, a 25-basis-point rate cut could help MSMEs absorb external shocks, maintain credit access, and power job-creation,” Arora added.Jash Panchamia, Executive Director, Jaypee Infratech Limited, said, “With inflation currently at a six-year low, a 25-basis-point cut in the repo rate would be encouraging for the overall economy. The real estate sector, having already benefited from the previous three consecutive rate cuts, would see a further boost in demand and buyer confidence if another cut is announced.”Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution, also acknowledged the mixed backdrop. “It is unlikely that the RBI will opt for another aggressive rate cut in the upcoming review. However, with inflation remaining below expectations, geopolitical tensions easing, and the domestic economy showing signs of resilience, a moderate 25 basis point cut remains a strong possibility,” he said.Policy panel compositionThe MPC consists of three RBI officials — Governor Sanjay Malhotra, Deputy Governor Poonam Gupta, and Executive Director Rajiv Ranjan — and three external members: Nagesh Kumar (Director, Institute for Studies in Industrial Development), Saugata Bhattacharya (Economist), and Ram Singh (Director, Delhi School of Economics).The government has mandated the RBI to maintain CPI inflation at 4% with a 2% tolerance on either side. Retail inflation has remained below 4% since February and stood at 2.1% in June.