India’s RBI to Hold Rates in August, But More Cuts Likely in 2025

REUTERS/Francis Mascarenhas

A Strategic Pause in Monetary Policy

At its Monetary Policy Committee meeting scheduled for August 4–6, 2025, the Reserve Bank of India (RBI) is expected to keep its key repo rate at 5.50%. This decision follows a surprise 50 basis-point cut in June that slashed rates from 6% to 5.5% and shifted the RBI’s policy stance to “neutral”.

First, the June cut was designed to support urban demand and spur lending. Now, RBI is holding steady to assess the impact of that move before acting again.

Also, economists in a Reuters poll indicate the pause is widely expected: 44 out of 57 surveyed projected no change in August, while most still anticipate at least one 25 bps cut before year-end.

Why the Pause Makes Sense

Furthermore, India’s economy remains strong. GDP growth reached 7.4% in Q1, giving RBI policy space to wait.

And second, inflation is cooling. Retail inflation dropped to near six-year lows—3.16% in April and likely holding near 2.1% in July, comfortably under the RBI’s 4% medium-term target.

Moreover, Governor Sanjay Malhotra emphasized that future rate decisions will be data-dependent and guided by outlook rather than just current readings.

What Comes Next: Cuts May Resume Later in 2025

According to several reports:

• ICICI Bank suggests the RBI may still deliver a 25 basis-point cut in August—bringing rates to 5.25%, citing weak urban demand and low inflation data.

• Jefferies, meanwhile, sees room for a cumulative 75 bps cut through 2025 if global conditions continue to improve, including a weakening U.S. dollar.

• A report from Angel One / Ionic Wealth indicates more liquidity will be needed in the second half of FY26, possibly prompting further easing.

Even RBI Governor Malhotra reaffirmed that further easing remains on the table, thanks to the neutral stance that allows adjustments in either direction depending on data.

Investor Sentiment and Bond Market Response

Moreover, foreign investors are responding. In the days after the June cut, ₹129 billion flowed into Indian government bonds tied to global indexes, signaling renewed confidence in India’s debt space.

Also, with U.S. Treasury yields under pressure and expectations that the U.S. Federal Reserve may cut rates later this year, India’s relatively higher yields are drawing new inflows. That trend suggests international sentiment is aligned with a possible Indian rate easing path.

Contextual Overview: What’s Shifting

First, the replacement of longtime RBI Governor Shaktikanta Das with Sanjay Malhotra earlier in 2025 signaled a shift toward a more accommodative approach—especially amid slower growth and softening inflation.

Second, policymakers have already cut rates by a full 100 bps this year. While that is the shortest easing cycle in over a decade, it reflects the RBI’s willingness to react as inflation stabilizes and growth flags.

Also, RBI has reiterated that rate cuts will not produce asset bubbles and that financial conditions remain manageable, thanks to improving transmission and liquidity through the banking system.

Forecast & Expectations

Looking ahead, the likely scenario is:

• August: Rate hold at 5.50%

• Later 2025: Possible single cut of 25 bps, bringing the key rate to 5.25%

• Beyond: Additional easing possible if inflation stays muted and growth softens further—but RBI will stay cautious to preserve policy flexibility.

Analysts assert that sub-3% average inflation for FY26, aided by a normal monsoon and stable commodity prices, leaves wiggle room for up to 75 bps of cumulative cuts in the full easing cycle.

Key Takeaways

• Neutral stance allows RBI flexibility: policy remains data-driven.

• Current rates: Repo rate holds at 5.50% through August.

• Next move: One more 25 bps cut likely by year-end.

• Macro themes: Growth support vs inflation vigilance.

• Investor reaction: Bond markets show renewed interest amid prospects of cuts and relative yield advantage.