RBI MPC August 2025: No Rate Cut, Nifty Realty Crashes Over 2%, Smallcaps Hit Hard

Though the market began the session on a subdued note, sentiment worsened once RBI Governor Sanjay Malhotra announced the committee’s decision.

Key indices soon turned negative across the board, led by declines in banking, financial services, real estate, and auto counters.

Source : ABPLIVE AI

Equity markets witnessed a broad-based decline on Wednesday after the Reserve Bank of India (RBI) maintained the benchmark repo rate at 5.5 per cent and reiterated its “neutral” policy stance. The decision, announced following the conclusion of the Monetary Policy Committee’s (MPC) three-day meeting on August 6, prompted a sharp sell-off in rate-sensitive sectors.

Though the market began the session on a subdued note, sentiment worsened once RBI Governor Sanjay Malhotra announced the committee’s decision. Key indices soon turned negative across the board, led by declines in banking, financial services, real estate, and auto counters. The Nifty Realty index tumbled 2.44 per cent, while the Nifty Auto and Financial Services 25/50 indices dropped 0.80 per cent and 0.41 per cent, respectively. Around 11:06 AM, the Nifty Smallcap50 also shed 1.44 per cent.

Muted Global Environment and Uncertain Trade Outlook

In its policy statement, the MPC highlighted persistent global challenges, despite some signs of stabilisation in recent months. “The global environment continues to be challenging. Although financial market volatility and geopolitical uncertainties have abated somewhat from their peaks in recent months, trade negotiation challenges continue to linger,” the panel noted.

While the International Monetary Fund (IMF) has slightly improved its global growth outlook, the RBI remains cautious. The pace of disinflation, the MPC warned, is decelerating, with a few advanced economies even seeing inflation rise again.

Domestic Drivers Remain Strong

Commenting on the domestic scenario, Governor Malhotra said that robust fundamentals were underpinning India’s growth. “The above normal southwest monsoon, lower inflation, rising capacity utilisation, and congenial financial conditions continue to support domestic economic activity,” he said. He also noted that continued support from monetary, fiscal, and regulatory policies, along with strong government capital expenditure, should provide an additional boost to demand.

Malhotra added that sectors such as construction and trade are expected to sustain momentum, aiding the services sector. However, he cautioned that headwinds from global trade tensions, geopolitical risks, and financial market volatility could weigh on future prospects.

Inflation Forecast Revised Sharply Lower

A key takeaway from the policy announcement was the downward revision of the Consumer Price Index (CPI) inflation forecast for most of FY26. Headline inflation is now projected at 3.1 per cent for the full year, a steep cut from the earlier estimate of 3.7 per cent.

The forecast for the second quarter (Q2FY26) was lowered significantly to 2.1 per cent from 3.4 per cent. Similarly, Q3 projections were revised down to 3.1 per cent from 3.9 per cent. The estimate for Q4 remains steady at 4.4 per cent, while inflation for Q1FY27 is expected to rise to 4.9 per cent.

Growth Outlook Unchanged

Despite global uncertainties, the RBI retained its real GDP growth forecast for FY26 at 6.5 per cent. The quarterly breakdown remains unaltered: 6.5 per cent for Q1, 6.7 per cent for Q2, 6.6 per cent for Q3, and 6.3 per cent for Q4.

The RBI had previously slashed the repo rate by 50 basis points at its last MPC meeting and shifted its stance from 'accommodative' to 'neutral'.