Will RBI cut rates? Most economists expect pause

MUMBAI: Economists are split on whether RBI's monetary policy committee will continue cutting rates, but most expect it to pause at the August 6 meeting to assess the impact of earlier reductions.

Some economists point to softening data. Industrial production as measured by its index slowed to a 10-month low of 1.5%. Credit growth is also weaker, including a marked drop in home loans. Also supporting a rate cut is inflation running below projections.

Soumya Kanti Ghosh, group chief economist at SBI there's no use in holding off on cutting interest rates in Aug. If inflation is going to stay low and steady even in FY27, the central bank shouldn't wait. He warned that if RBI wrongly assumes that low inflation is temporary and decides not to cut rates, inflation stays low for a long time, and the economy keeps slowing down. A cut now, he added, could support demand during the upcoming festive season. "A frontloaded rate cut in Aug could bring early Diwali... Even festive season is frontloaded in FY26... Empirical evidence suggests a strong pick-up in credit growth whenever festive season has been early and has been preceded with a rate cut."

Others urge caution. Having already lowered the repo rate by 100 basis points (1 percentage point) over three consecutive meetings, RBI may prefer to pause, allowing the effects of previous cuts to ripple through the economy. A note by CareEdge Ratings noted that while inflation is easing and external risks to growth are rising, the central bank may choose to wait. It expects RBI to maintain its 6.4% growth forecast while slightly reducing its inflation outlook for FY26. The US tariff uncertainty is pushing the RBI panel toward a cautious, measured approach, most likely opting for a pause or a "dovish hold" in August while leaving the door open for future policy action.

Barclays' India chief economist Aastha Gudwani also expects the central bank to stay put in Aug. "While this backdrop is conducive for further monetary easing, we believe it is not yet compelling enough to deliver a fourth straight rate cut, and exhaust the policy arsenal," she said. Gudwani expects a "dovish pause" with RBI retaining a neutral stance and possibly delivering a final 25bps cut in October.