RBI MPC August 2025: Inflation Cooling But Tariff Uncertainty Likely To Keep Rates On Hold

The next bi-monthly review is scheduled for 4-6 August 2025, and analysts believe further rate cuts are improbable unless economic growth weakens significantly.

The review highlighted that the RBI remains focused on the inflation trajectory, with CPI-based retail inflation forecast to cross 4 per cent in Q4 of 2025-26 and average 4.5 per cent in 2026-27.

Source : PTI

The Reserve Bank of India (RBI) is expected to hold its stance on interest rates at its upcoming monetary policy meeting, with CareEdge Ratings suggesting the central bank has already frontloaded rate cuts in anticipation of easing inflationary pressures.

The next bi-monthly review is scheduled for 4-6 August 2025, and analysts believe further rate cuts are improbable unless economic growth weakens significantly, reported ANI. 

CareEdge noted that uncertainty surrounding the US’s proposed 25 per cent reciprocal tariff on India could keep the RBI in wait-and-watch mode. “The RBI may opt to wait till we get further clarity on this front,” the ratings agency observed in its pre-policy note.

Inflation outlook steady, transmission of cuts still pending

The review highlighted that the RBI remains focused on the inflation trajectory, with CPI-based retail inflation forecast to cross 4 per cent in Q4 of 2025-26 and average 4.5 per cent in 2026-27. This would place the real policy rate in the 1 to 1.5 per cent range at the current repo rate. “Therefore, a rate cut in the upcoming policy meeting appears unlikely,” CareEdge stated, adding that the central bank will allow more time for the effects of its previous reductions to filter through the system.

The ratings agency stressed that transmission of earlier rate cuts is still incomplete and could take longer to fully influence the economy. “With the RBI having already frontloaded rate cuts and ensured ample liquidity, the MPC may prefer to pause for now and assess how the macroeconomic landscape evolves,” it said.

Inflation eases, but global risks loom

Headline inflation has moderated in recent months, largely due to softening food prices, with forecasts showing inflation averaging below the 4 per cent target for the next two quarters. While global trade policy uncertainty remains a concern, CareEdge believes the broader effect on India’s economy will be “limited”, given the country’s relatively low merchandise trade exposure to the US.

Since February 2025, the RBI has reduced the repo rate by 100 basis points, a move Governor Sanjay Malhotra earlier indicated was aimed at stimulating a slowing economy. But with cuts already frontloaded, there is now “limited scope for more easing,” CareEdge concluded.