No rate cut yet, but falling inflation keeps hopes alive
Mumbai: The Reserve Bank of India (RBI) kept the policy repo rate steady at 5.5% in its August monetary policy review, with all six members of the Monetary Policy Committee voting unanimously to maintain the status quo.
The central bank also retained its ‘neutral’ monetary policy stance, signalling a data-dependent approach in the months ahead.
According to a note by Bajaj Broking, the RBI’s decision to hold rates steady was widely expected, though the sharp cut in inflation projections was notable.
The RBI seeks to balance easing inflationary pressures with persistent global uncertainty and uneven domestic growth indicators.
GDP growth outlook unchanged at 6.5%
The central bank held its real GDP growth projection for FY26 at 6.5%, the same as in its previous policy review in June.
The quarterly forecasts also remain unchanged:
Q1FY26: 6.5%
Q2FY26: 6.7%
Q3FY26: 6.6%
Q4FY26: 6.3%
For the first quarter of FY27, the RBI projects GDP growth at 6.6%.
The estimates come on the back of a resilient showing in FY25, where India’s economy grew by 6.5%, with the January–March quarter delivering an unexpected 7.4% expansion. GDP data for the April–June 2025 quarter is scheduled to be released at the end of August.
Sharp cut in CPI inflation estimates
While the growth projections held steady, the RBI sharply revised downward its inflation forecasts, citing the continued easing of price pressures in recent months.
For FY26, CPI inflation is now projected at 3.1%, lower than the 3.7% forecast in June. Quarterly inflation expectations were also reduced significantly:
Q2FY26: 2.1% (previously 3.4%)
Q3FY26: 3.1% (previously 3.9%)
Q4FY26: unchanged at 4.4%
For Q1FY27, inflation is expected to rise to 4.9%.
As per the latest data, headline retail inflation slumped to a 77-month low of 2.1% in June, with CPI inflation averaging 2.7% in Q1FY26, according to the Ministry of Statistics.
Despite the recent softness in inflation, the RBI’s unchanged policy rate signals a cautious stance, likely influenced by uncertainties around food prices and geopolitical tensions.
With inflation now well below the 4% target and GDP growth holding steady, analysts believe the window for rate cuts may still open later this year, should price stability persist.
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