RBI MPC Meet Today: Will the Central Bank Cut Rates? Market Expert Ajay Bagga Weighs In

(Written by Ajay Bagga)

RBI Policy day today.

What to expect?
1. Trump Tariffs are complicating the RBI's task 

2. At the last policy, with the jumbo cut and the shift of Policy stance to "Neutral", RBI had signalled rate cuts were done for a few quarters at least.

3. Persistently low consumer inflation and a deflationary spiral in wholesale/producer price inflation globally has created space for one more rate cut from the RBI today.

4.The majority — 23 out of 35 economists surveyed by Bloomberg — still expect the Reserve Bank of India to hold today.

5. However, given the falling credit offtake and the potential GDP impact of a drag of 0.3% from the US tariffs, it may be RBI's thinking to front load one more rate cut today ahead of the festive season which sees more than 60% of India's consumer spending .

6. Inflation is expected to stay within the RBI's targeted levels for the rest of this year

7. Policy stance is expected to stay at "Neutral" to allow flexibility to the RBI

8. Imported inflationary impulses via a disrupted Oil market should more stringent sanctions on Russian crude oil be announced by the US remain a risk.

9. The risk of an economic slowdown is however higher which may tip the RBI into a rate cut today.

10. Growth projections may not be changed from the June projections of GDP growth though credit growth and corporate earnings have been below estimates for the last quarter.

11. Strong India Service and Manufacturing PMI , along with an expected boost to farm output on the back of an above normal monsoon and high reservoir levels point to strength in the broader Indian economy.

12. Of the 100 bps of rate cuts undertaken by the RBI since Feb 2025, around 60 bps has got transmitted so far. Bank credit and bank margins have lagged while government bond yields have stayed firm in the last couple of months.

13. The Rupee has fallen over 2% in the past 40 days, with expectations that the RBI will allow the Rupee to depreciate in an orderly manner to help offset some of the impact of the US tariffs.

14. If the rate cut happens today, taking the benchmark rate to 5.25%, the RBI could be done with further rate cuts or could cut once in December depending on the economic performance . Pre Covid the RBI rate was 5.15%, which was cut to 4% during the Covid crisis and then raised to 6.5% to fight surging inflation. As the rate cut cycle enters its last phase, RBI may cut today and then go into a pause mode to allow the transmission to happen.

15.India’s headline inflation eased to 2.1% in June, below the RBI’s target for five months in a row. That, along with the good monsoon and encouraging progress on sowing, will keep price gains below the RBI’s 3.7% projection in FY2026. We expect a minor cut at best to the inflation projection number.

16. On GDP, RBI may not have enough data to model the impact of US tariffs of 25% and the risk of substantial secondary tariffs threatened for buying Russian crude oil.  The hit to GDP as of now is forecasted to be around 0.3% annualised. 

17. On Liquidity, the RBI has done a wonderful job since last December and has taken its foot off the liquidity pedal now to let markets normalise and absorb the liquidity pumped in. That has been a sentiment booster for the markets that were hamstrung by tight liquidity and high rates for most of CY2024.Currently, excess liquidity in the banking system stands at 3.3 trillion rupees. With the CRR cut taking effect in tranches starting in September, another 2.5 trillion rupees is expected to be added.

18. Slight lowering of inflation and GDP growth forecasts and a possible rate cut make this a dovish policy that we expect today.

19.India’s 10-year benchmark bond yield has risen about 10 basis points over the past two months, after RBI raised the bar for easing and started draining liquidity. The yield on the same bond was up one basis point to 6.32% on Tuesday.

We will know in around 75 minutes.

(Written by Ajay Bagga)

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