RBI likely to hold repo rate at 5.25%, market to focus on policy guidance: Nuvama
New Delhi, August 1
The Reserve Bank of India is likely to keep the repo rate unchanged at 5.25% at the upcoming Monetary Policy Committee meeting, with policymakers expected to adopt a wait-and-watch approach amid heightened uncertainty over inflation, growth and global conditions, according to a research report by Nuvama.
While a rate hike is unlikely, the RBI's guidance on the future policy path is expected to be closely watched, particularly its assessment of inflation risks, liquidity conditions and the external environment, the report said. The central bank may prioritise liquidity management over further rate action in the near term, while retaining a calibrated and flexible policy approach.
Inflation risks have become more uncertain due to supply-side factors. Oil prices remain highly volatile amid the US-Iran conflict, while disruptions in the Strait of Hormuz and the Red Sea have added to concerns over supply chains. Prospects of a weak or uneven monsoon, including risks associated with El Nino, could further put pressure on food inflation.
At the same time, several companies have implemented price hikes, adding another potential source of inflationary pressure. Against this backdrop, the MPC is likely to avoid a rate cut or hike for now and instead assess how these risks evolve.
Financial conditions have already tightened in recent weeks, with India's 10-year bond yields rising. This hardening in yields reduces the immediate need for additional rate action and reinforces the case for the RBI to maintain the status quo while focusing on liquidity conditions.
The broader macroeconomic picture remains mixed. Credit growth has shown signs of improvement, although overall economic momentum remains uneven and concentrated in certain segments. The impact of GST rate cuts has provided some support to activity, but the boost could fade in the second half of FY27.
Meanwhile, intensifying El Nino-related risks could weigh on growth through their impact on agriculture and food prices. External demand also remains subdued amid uncertainty in the global backdrop for exports.
The RBI is therefore expected to closely monitor demand conditions, liquidity dynamics, inflation and developments in the West Asia conflict before considering further policy action. The stance is likely to remain flexible, allowing policymakers to respond to incoming economic data and external shocks.
With the repo rate expected to remain at 5.25%, the MPC's commentary could prove more significant for markets than the rate decision itself, particularly its signals on the timing and direction of future policy moves.
— ANI
Reader Comments
As someone who just took a home loan this year, I'm relieved they're holding the rate. But honestly, this 'wait and watch' approach has been going on for too long. The RBI needs to give clear signals, not just keep us guessing. Homebuyers and small businesses need certainty, not ambiguity.
The El Nino risk is scary. If monsoon fails, food inflation will spike and the poor will suffer the most. RBI should focus on liquidity management and maybe even consider supply-side measures with the government. Just holding rates isn't enough when dal and sabzi prices are skyrocketing.
Markets are gaming on the commentary, but what about the real economy? Credit growth is 'showing signs of improvement' - that's corporate speak for patchy recovery. Meanwhile, small businesses and startups are still struggling. The RBI's 'flexible stance' feels more like 'confused stance'. We need bold decisions, not more ambiguity.
With the US-Iran conflict and Red Sea issues, global trade is truly messed up. India's exports will suffer, and if oil crosses $90 again, our import bill will blow up. Holding rates is the sensible option, but the RBI should also actively manage rupee volatility. A stable currency matters more than interest rates for trade and FDI.
Good to see RBI being pragmatic instead of blindly following Western central banks. Our economy needs a balanced approach - not just fighting inflation with rate hikes that hurt growth. Let's hope the GST cuts and other fiscal measures complement the RBI's efforts. Economic recovery is still fragile, especially in
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