The Reserve Bank of India (RBI) kept its benchmark repo rate unchanged at 5.5 per cent in its latest monetary policy review, even as concerns loom over global trade uncertainty and slowing external demand. The announcement was made during the bi-monthly Monetary Policy Committee (MPC) meeting, held against the backdrop of a fresh tariff threat from US President Donald Trump, which has added to existing global economic tensions.
This decision follows a larger-than-expected 50 basis points rate cut by the RBI in June, which was aimed at spurring growth amid softening inflation. While keeping the policy stance unchanged at ‘neutral’, RBI Governor Sanjay Malhotra said that the central bank would maintain a close watch on evolving global conditions, noting that monetary policy transmission is still underway.
“The prospects of external demand remain uncertain amidst ongoing tariff announcements and trade negotiations,” said Malhotra, adding that headwinds from prolonged geopolitical tensions continue to pose downside risks to India’s growth outlook.
The RBI chief also acknowledged that while geopolitical uncertainties have somewhat abated, global trade challenges persist. Nevertheless, he expressed optimism about India’s medium-term growth trajectory, though he also cautioned that policymakers worldwide are grappling with muted growth and slowing inflation.
Will There Be More RBI Rate Cuts in 2025?
With inflation projected to remain well within the RBI’s comfort zone, market participants are now debating whether the central bank has room to cut rates again later in the year. Economists and fund managers appear divided, although several acknowledge that a window for additional easing could open depending on incoming data.
Vikas Garg, Head of Fixed Income at Invesco Mutual Fund, said that any further cuts would require significant downside surprises in growth.
“Forward-looking growth-inflation dynamics set a high bar for any future rate cuts. A small window for a possible final rate cut may open in the October or December policy meetings, but only if economic growth surprises meaningfully on the downside.”
Meanwhile, Madhavi Arora, Chief Economist at Emkay Global Financial Services, believes that the RBI may have erred in focusing too heavily on one-year-ahead inflation expectations while underplaying the evolving global economic reset.
“Despite sharply lowering its inflation forecast, the RBI’s decision to keep rates steady stems from its focus on expected inflation staying above 4%. But global disinflationary trends, especially across Asia, could soon make downside growth risks more visible. We believe this could open up space for easing later this year—even if the RBI appears to have raised the bar for further action.”
The RBI Governor stated that retail inflation is expected to rise in the final quarter of FY2026, aligning with analyst forecasts. However, core inflation is projected to remain stable around the 4 per cent mark. Reflecting signs of easing price pressures, the RBI has revised its Consumer Price Index (CPI) inflation projections downward for most of FY26. The headline inflation estimate for the full fiscal year has been cut to 3.1 per cent from the earlier 3.7 per cent.
Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, echoed similar views, pointing out that the RBI had already front-loaded its rate reductions in June.
“GDP growth is expected to hold up at 6.5% for FY26, despite tariff-related uncertainty. It is pegged at 6.6% for FY27. The inflation outlook is favourable and revised downwards to 3.1% from 3.7% earlier. After the current pause, the RBI could opt for a 25 basis points rate cut in the upcoming meetings.”
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