NEW DELHI: Even as the RBI pushed the pause button on rate cut, and maintained the ‘neutral’ stance, experts are still hopeful of another 50 basis points rate cut in the current financial year given the emerging global trade scenario. The pause in rate cut was expected as the Monetary Policy Committee – the rate setting panel of the Central Bank – had frontloaded the rate cut by going for a 50 bps cut instead of 25 bps in the June monetary policy. Since February, the RBI has cut the repo rate by 100 bps.
“With medium-term inflation now projected to hover around the 4% mark, we expect the terminal repo rate in this cycle to settle near 5%. This points to room for an additional 50 bps reduction, with the possibility of a further 25 bps cut should inflation consistently remain below 4%,” says Sujan Hajra, chief economist & executive director, Anand Rathi Group.
The RBI in its policy statement has maintained the GDP growth at 6.5% in the current financial year despite uncertainty over global trade and geopolitical situation. It has, however, cut the inflation forecast for FY26 to 3.1% from 3.7% earlier.
Despite sharply lowering its inflation forecast to 3.1% from 3.7% earlier, RBI’s decision to keep rates steady emanates from their focus on one-year-ahead expected inflation that’s looking comfortably above 4%, while growth in their view has held up well, despite global uncertainty, says Madhavi Arora, Chief Economist, Emkay Global Financial Services.
However, she thinks going ahead downside risks to growth would be increasingly evident with new global resets and could still open up space for easing in remainder of the year.
Arsh Mogre, economist, PL Capital, argues that while headline inflation remains benign and June’s front-loaded 50 bps cut still transmits through the system, the MPC appears acutely aware that downside risks to growth from tariff spillovers are not yet fully priced in.
“Maintaining a ‘neutral’ stance signals optionality rather than indecision as the central bank is keeping policy nimble in case trade shocks escalate or if financial conditions tighten globally. Any fresh easing will now hinge not just on data but on the balance of risks between global trade retrenchment, domestic demand softening, and the rupee’s trajectory,” adds Mogre.
Though we expected MPC to cut rates amid soaring tariff related uncertainties and easing inflation dynamics, today’s decision to maintain the pause may also be suggestive of MPC keeping its powder dry, should things worsen on the trade and tariff front, says Garima Kapoor, Economist and Executive Vice President, Elara Capital.