RBI likely to hold repo rate at 5.5% amid growth concerns, subdued inflation: Experts

Mumbai, Aug 3: The Reserve Bank of India is expected to maintain the key short-term lending rate, or repo rate, at 5.5% in its upcoming monetary policy review on Wednesday, despite economic headwinds and persistent uncertainty over US tariffs. According to leading economists, the central bank may opt for a wait-and-watch approach after having already delivered three consecutive rate cuts totalling 100 basis points.

The Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, will begin its three-day deliberation on Monday and announce its decision on August 6. The focus is likely to be on balancing growth challenges with the central bank’s inflation mandate.

Madan Sabnavis, Chief Economist at Bank of Baroda, said the policy may not be swayed by the latest low inflation readings or the recently imposed 25% US tariff. “The RBI had already factored in the earlier deferred tariff of 26% from April. While there may be a slight downward revision in the inflation projection—possibly from 3.7% to around 3.5–3.6%—we do not foresee any rate or stance change this time,” he said. According to him, the policy tone may lean toward caution, but with a degree of comfort from the resilience in economic activity.

CareEdge Ratings echoed similar sentiments, noting that the RBI had frontloaded the rate cuts in anticipation of moderating inflation and may now prefer to assess the transmission impact of those earlier moves. “Unless growth concerns intensify, we don’t expect further cuts. While recent US tariff actions are worrying, the RBI is likely to wait for more clarity before reacting,” the agency said.

Retail inflation, measured by the Consumer Price Index (CPI), has remained under 4% since February, hitting 2.1% in June—well within the RBI's target band of 4% ± 2%.

Aditi Nayar, Chief Economist at Icra, said the inflation trajectory appears softer in the second half of the year, and GDP growth could take a hit from US trade measures. “This keeps the door slightly open for a final 25 basis point rate cut in the upcoming policy,” she said.

Sharing a similar view, Crisil’s Chief Economist Dharmakirti Joshi pointed out that inflation remains benign, while growth concerns continue to mount. “We anticipate a 25 bps cut, as downside risks to growth currently outweigh inflationary threats."

The six-member MPC includes three RBI officials—Governor Sanjay Malhotra, Deputy Governor Poonam Gupta, and Executive Director Rajiv Ranjan—along with three external members: economist Saugata Bhattacharya, Nagesh Kumar of ISID New Delhi, and Ram Singh from Delhi School of Economics.

While consensus tilts toward a pause, expectations of a final rate cut haven't entirely faded—making Wednesday’s policy review closely watched by markets and businesses alike.