Is the RBI Poised for a Rate Cut on August 6? Economists are Divided
With inflation comfortably below 3% and a potential economic slowdown looming, the Reserve Bank of India’s (RBI) upcoming monetary policy meeting is drawing significant attention. While some economists believe a rate cut is imminent to stimulate growth, others are urging the central bank to hold steady amid global uncertainties.
Here’s a breakdown of the experts’ views:
- Those who expect a 25 bps rate cut: Samiran Chakraborty of Citi and Soumya Kanti Ghosh of SBI believe the RBI has enough room to act now, given low inflation and signs of a slowdown in economic momentum.
- Those who favor a pause: Sonal Varma of Nomura, Sajjid Chinoy of JPMorgan, and former Chief Statistician Pronab Sen argue for caution. They point to unpredictable global trade policies and the risk of acting too early.
What to Expect for the Rest of 2025
Beyond the August meeting, economists also have different forecasts for the rest of the year:
- More cuts: Varma expects a total of 50 bps in further cuts, while Ghosh and Chakraborty see room for just one more 25 bps cut.
- No cuts or a big one: Chinoy suggests either no further cuts or, at most, one. Sen believes that if the RBI does cut, it should be a decisive 50 bps move rather than a series of smaller ones.
Key Factors Influencing the Decision
The panel agreed that the RBI’s decision hinges on several crucial factors:
- Inflation: While current inflation is low, there are debates on whether this is sustainable. Some experts are concerned about the long-term outlook and the potential for a new inflation series next year.
- Global Economy: The global economic outlook is uncertain due to new US tariffs and weak jobs data. Chinoy warns that the apparent strength of the global economy in the first half of the year is “deceptive” and that a slowdown is likely in the second half.
- Domestic Growth: Economists noted that while the first-quarter GDP might look strong, it could be a “statistical artifact.” Leading indicators like two-wheeler sales and GST collections point to a slowdown ahead, suggesting that India’s economic story will be one of two halves.
- Liquidity: There was a consensus that the RBI should maintain its policy operating procedures and that an explicit rate cut is a more effective way to manage liquidity than “stealth easing.”