ICICI Bank Sees 25 Bps Rate Cut Likely In August RBI Policy Review; Details Inside

The report notes that India’s economic growth presents a mixed picture. While rural demand remains resilient, urban consumption continues to show signs of weakness

On the global front, the report points to ongoing volatility, citing geopolitical tensions and trade policy shifts

Source : PTI

The Reserve Bank of India's Monetary Policy Committee (MPC) could consider a 25 basis points (bps) cut in its policy rate during the upcoming August meeting, potentially bringing the repo rate down to 5.25 per cent, according to a report by ICICI Bank. The report cites a favourable inflation environment and a mixed growth outlook as key reasons supporting a rate cut at this time.

"We believe this opens up policy space for an additional 25bps rate cut, taking the terminal rate to 5.25 per cent. When would the MPC cut the policy rate? We believe that August would be the appropriate time for the same, given the muted inflation scenario," the bank stated.

Rural Strength, Urban Weakness In Growth Landscape

The report notes that India’s economic growth presents a mixed picture. While rural demand remains resilient, urban consumption continues to show signs of weakness. In terms of external trade, exports to the US have picked up, but shipments to other global markets are still subdued.

Inflation data since the last MPC meeting has surprised on the downside. ICICI Bank now forecasts retail inflation to average just 2.9 per cent in FY26, significantly lower than the Reserve Bank’s previous projection of 3.7 per cent. With inflation currently under control and the MPC’s stance being neutral, the report suggests now is the ideal window for policy action before inflation trends reverse later in the year.

Global Risks Add To Uncertainty

On the global front, the report points to ongoing volatility, citing geopolitical tensions and trade policy shifts. A recent conflict in the Middle East caused a sudden spike in crude oil prices, while new tariffs announced by US President Donald Trump, effective from August 1, are already showing up in higher inflation figures. US inflation rose to 2.7 per cent in June from 2.4 per cent in May.

Despite stronger-than-expected growth in the US economy, early signs of a slowdown, such as weakening private sector hiring and softening retail sales, suggest that stagflation risks are rising. Although the Federal Reserve has held off on rate cuts so far, the ICICI Bank report anticipates a more accommodative stance later this year if economic momentum continues to weaken.