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Key Points

The RBI may lower the repo rate to 5.25% in August, as per ICICI Bank's analysis. Inflation remains subdued, creating room for further easing despite mixed economic signals. Global risks like rising oil prices and U.S. tariffs add uncertainty. The MPC could act soon before inflation trends reverse later this year.

Key Points: RBI May Cut Repo Rate to 5.25% in August Says ICICI Bank Report

  • RBI likely to cut repo rate by 25 bps in August
  • Inflation below projections at 2.9% for FY26
  • Mixed demand with strong rural but weak urban growth
  • Global uncertainty from tariffs and Middle East tensions
3 min read

RBI may go for another 25 bps rate cut in August, repo rate to come down at 5.25%: Report

ICICI Bank predicts a 25 bps RBI rate cut in August amid low inflation and mixed growth signals, bringing repo rate to 5.25%.

"We believe this opens up policy space for an additional 25bps rate cut, taking the terminal rate to 5.25%. – ICICI Bank Report"

Mumbai, July 18

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) may go for another cut in the policy rate of 25 basis points (bps) in the upcoming August policy meeting, bringing it down to 5.25 per cent, according to a report by ICICI Bank.

The report explained that the growth outlook in India remains mixed. While urban demand is weak, rural demand continues to remain strong. Goods exports to the United States are showing improvement, but exports to other regions remain weak.

Considering these trends and the current inflation situation, the report believed that August is the right time for a rate cut.

It stated "we believe this opens up policy space for an additional 25bps rate cut, taking the terminal rate to 5.25 per cent. When would the MPC cut the policy rate? We believe that August would be the appropriate time for the same, given the muted inflation scenario".

The report added that inflation has been much lower than expected since the last MPC meeting. It now estimates inflation for FY26 to average at 2.9 per cent, which is much lower than RBI's earlier projection of 3.7 per cent.

This downward trend in inflation opens up space for further policy easing, especially since the MPC currently maintains a neutral stance, which means decisions depend on economic data.

The report also mentioned that inflation is expected to rise in Q4 and FY27 due to the base effect. Therefore, the opportunity for the MPC to cut rates may not be available later in the year.

On the global front, the report said that the economic outlook remains uncertain and volatile due to tariffs and geopolitical events. A brief conflict in the Middle East last month led to a sharp rise in oil prices.

Also, the recent tariffs announced by U.S. President Donald Trump, set to be implemented from August 1, are higher than current levels and are already reflecting in inflation data. U.S. inflation rose to 2.7 per cent year-on-year in June from 2.4 per cent in May.

While the U.S. economy has performed better than expected, there are signs of slowing momentum. Private hiring is weakening and retail sales have dropped, which indicates possible stagflation in the near term.

This situation is currently preventing the U.S. Federal Reserve from cutting interest rates. However, as growth weakens further in the coming months, the Fed may turn more supportive of rate cuts later this year.

- ANI

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Reader Comments

S
Sarah B
As an NRI investor, I'm concerned about the impact on FDs. Interest rates are already quite low, and another cut will make Indian deposits less attractive compared to other emerging markets.
A
Ananya R
RBI should focus more on boosting rural demand. Urban slowdown is worrying but our farmers need more support. Lower rates should translate to cheaper agri loans - that's real economic stimulus!
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Vikram M
With inflation projected at just 2.9%, RBI has enough room for cuts. But they must ensure this doesn't lead to asset bubbles like last time. Strict monitoring of real estate and stock markets is needed.
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Karthik V
As a small business owner, I welcome this move. Lower interest rates mean cheaper working capital loans. But banks need to simplify loan procedures - too much paperwork is killing MSMEs!
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Priya S
The US-China trade war and Middle East tensions are big risks. RBI should keep some powder dry instead of using all rate cuts now. What if oil prices spike suddenly? Better to be cautious.

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