Economists now batting for rate cut in the next policy

Mumbai, Aug 06

Even as the RBI has maintained status quo on key policy rates, economists now batting for rate cut in the next policy.

They believe that the rate cut may be to the tune of 25 bsp in the forthcoming policy.

RBI, post three-day brainstorming MPC meeting which concluded today, kept the interest rates unchanged at 5.50 per cent in August monetary policy meeting, with neutral stance.

The policy meeting outcome was in line with expectations regarding the repo rate.

Talking to Bizz Buzz, Debopam Chaudhari, Chief Economist, Piramal Group says, “We now anticipate a 25 bps rate cut in the upcoming October meeting. Earlier, we had estimated the terminal policy rate for FY26 at 5 per cent. However, given the sharp downward revision in RBI’s inflation forecast, we are revising our view to 4.75 per cent.”

On the trade front, the current structure of US tariffs on India could cause short-term disruptions in production and employment across key sectors like textiles and auto components. However, proactive political engagement is expected to lead to a more amicable resolution within the next 30–60 days, mitigating broader economic fallout, he said.

Simultaneously, free trade agreements with other nations are likely to compensate for some of the business lost to the US. Additionally, lower borrowing costs should boost urban consumer demand—a key driver of India’s GDP. Taken together, these factors strengthen the outlook for India’s economic growth to surpass that of FY25.

Binod Kumar MD & CEO of Indian Bank says, “As RBI had front loaded rate cate, it was expected to maintain status quo. It is a welcome move. However, it leaves room to reconsider in coming months as CPI is benign and a push for growth may be required.”

At Indian Bank, we have already passed on benefits of previous rate cut and expect further normalisation in MCLR as cost of fund continue southward journey, he said.

The RBI kept repo rate unchanged in the August policy as it focused on inflation starting to increase steadily from Q4 while acknowledging a much benign inflation trajectory in its estimates for the remainder of CY25.

Suvodeep Rakshit, Chief Economist at Kotak Institutional Equities says, “We expect the RBI to keep liquidity adequately in surplus to ensure continued transmission of the rate cut cycle.”

We believe that the RBI will likely remain on a long pause as it focuses on the FY27 inflation trajectory and growth impulses remaining steady. The bar for a dovish shift will be higher from here on and dependant on substantial downside to growth prospects, he said.

EoM.