Will RBI go for another rate cut amid tariff uncertainty? Here’s what brokerages say

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, commenced its three-day meeting on August 4, with the policy outcome scheduled to be announced on August 6, 2025.

After reducing the repo rate by 100 basis points (bps) over the last three policy meetings, bringing the rate down from 6.5% in February to 5.5% in June, brokerages expect the RBI MPC to maintain the status quo in its latest policy review.

While most economists opine that the MPC will keep both the repo rate and its “neutral” policy stance unchanged, some expect the central bank to continue frontloading with a 25 bps cut in the August policy meeting.

Notably, the upcoming monetary policy decision will take place against the backdrop of ongoing global uncertainty. “External factors such as recent US tariff hikes and rupee volatility further add to the uncertainty. With these risks in play, the RBI is expected to adopt a “wait and watch” approach, refraining from additional easing until there is more clarity, Bajaj Broking said in a report.

The agency said that the MPC is likely to pause and allow time for the effects of previous measures to filter through the economy. “Any further rate action—if deemed necessary—is anticipated only in October or beyond, once more data on festive demand, agricultural output, and global conditions is available.”

“At the last policy, the RBI frontloaded the rate cuts and shifted the stance to ‘neutral’, suggesting limited room for further cuts. Accordingly, we expect the MPC to hold rates steady at the upcoming policy review,” Nuvama Institutional Equities said in a note.

The brokerage added that there is an outside chance of the RBI shifting its stance back to ‘accommodative’ from ‘neutral’ earlier given inflation is undershooting. “In any case, the evolving domestic growth-inflation dynamic and highly uncertain global growth outlook constitute a compelling case for further rate cuts by the RBI down the line.”

Global brokerage BofA Securities said the RBI would prioritise financial stability and exchange rate management, and while it may acknowledge downside growth risks. The central bank is likely to meet its GDP growth target of 6.5%, and likely undershoot its inflation projections of 3.7%. “This essentially implies that RBI can choose to either stand pat, or potentially consider a 25bp rate reduction, without necessarily being too provocative, while retaining the neutral stance.”

“We maintain our view of a hold at 5.50% in August, expecting RBI to eventually lean in favor of strategic patience, to observe transmission of existing cuts and measures, before choosing the future course of action,” BofA Securities said in a report.

Meanwhile, SBI Research expects the RBI to continue frontloading with a 25 bps cut in August policy. “With inflation having decisively eased and remained within the RBI's tolerance band for several months, maintaining a restrictive policy stance risks exacerbating output losses that are neither easily reversible.”

The report noted that monetary policy operates with lags, and postponing a rate cut until inflation falls further or growth weakens more visibly could result in deeper and more persistent economic damage.

Emkay Global in a note said that the consensus view of ‘no rate cut’ in August appears to emanate more from the June policy guidance rather than the present macro realities. “However, we believe there are enough reasons for the RBI to deviate from its previous guidance, deliver a further 25bp easing in August, and be more open-ended in its policy approach/guidance for further easing ahead.”

With CPI inflation expected to breach 4% in Q4 FY26 and average around 4.5% in FY27, the real policy rate would settle in the range of 1–1.5% at the current repo rate, Care Ratings said in a note.

“Therefore, a rate cut in the upcoming policy meeting appears unlikely. Given the incomplete transmission of the previous rate cuts, the RBI is expected to hold off on further easing, allowing time for the full impact of earlier measures to materialise.”

Moreover, a hawkish stance from the U.S. Federal Reserve, ongoing trade tension with the U.S. and recent appreciation of the U.S. dollar index could provide further reasons for adopting a wait-and-watch approach, as additional pressure on the rupee may emerge, the rating agency said.

The CPI inflation, which eased further to 2.1% in June, is projected to average below the 4% target over the next two quarters, supported by a favourable base and muted food inflation.

As far as growth is concerned, there is likely to be some moderation in the near term due to global trade policy uncertainty. However, the overall impact is likely to be limited given India’s limited merchandise trade exposure to the U.S. economy.