The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is concluding its three-day meeting today, August 6, 2025, and all eyes are on RBI Governor Sanjay Malhotra as he announces the committee's decisions at 10:00 AM. The central question on everyone's mind: Will the MPC opt for another repo rate cut, or will it maintain the status quo?
The Backdrop
The MPC's meeting takes place against a backdrop of easing inflation and a series of prior rate cuts. Since February 2025, the RBI has cut the repo rate by a cumulative 100 basis points, bringing it down to 5.5%. In its last meeting in June, the MPC surprised many with a substantial 50 bps cut. This easing of monetary policy has been complemented by a 100-basis-point reduction in the Cash Reserve Ratio (CRR), injecting approximately ₹2.5 trillion into the banking system by November 2025 and boosting systemic liquidity.
However, the global economic landscape has become more complex. Fresh trade tensions have emerged due to the United States imposing a 25% tariff on Indian goods. Looming sanctions over Russian oil imports add another layer of uncertainty. These external headwinds could influence the MPC's decision.
The Case for a Rate Cut
Some economists believe that a further rate cut is warranted to boost credit growth, especially with the Diwali festival approaching. A report by the State Bank of India (SBI) suggests that a front-loaded rate cut could bring an "early Diwali" by encouraging consumer spending during the festive season. Historical data indicates that repo rate cuts before Diwali tend to result in higher credit growth.
SBI's group chief economic advisor, Soumya Kanti Ghosh, argues that with inflation under control, maintaining a restrictive policy stance could exacerbate output losses. He suggests that delaying a rate cut until inflation falls further or growth weakens more visibly could lead to deeper and more persistent economic damage.
The Case for Maintaining Status Quo
Despite calls for a final rate cut, the majority of analysts expect the RBI to maintain the repo rate at 5.5%. Several factors support this view. Inflation has eased significantly, with retail inflation in June falling to 2.1%, the lowest since January 2019. This gives the MPC room to pause and assess the impact of previous rate cuts.
Moreover, the recent US tariffs on Indian goods have created economic uncertainty. While some economists believe these tariffs are already priced into the RBI's outlook, others suggest that the central bank may adopt a "wait-and-watch" approach to gauge the impact of these external pressures.
Other Factors to Watch
Besides the repo rate decision, markets will be closely watching the RBI's commentary on liquidity management. With a system surplus of over ₹3.3 lakh crore, the central bank's strategy for absorbing this excess liquidity will be crucial. The MPC's inflation and GDP projections will also be closely scrutinized. In its previous meeting, the RBI lowered its CPI inflation forecast to 3.7%. Any revisions to these forecasts will provide insights into the MPC's economic outlook.
The Implications
The MPC's decision will have significant implications for the Indian economy. A rate cut could boost credit growth and consumer spending, while maintaining the status quo could help stabilize the economy amid global uncertainties. The RBI's policy stance will also influence the stock market, bond yields, and the value of the Indian rupee.
