No cut, one cut, or two? Economists split on RBI MPC’s next move

Reserve Bank of India

As the July consumer price inflation (CPI) print slid to eight-year lows, analysts were divided on if the Reserve Bank of India would continue easing the key benchmark lending rate.

In the August meeting, the RBI’s Monetary Policy Committee voted unanimously to keep the repo rate unchanged at 5.5 percent, instead waiting for the front-loaded rate cuts of 100 basis points over this cycle to transmit through the system.

However, going forward some analysts expect the tactical pause to turn into some easing. With the global trade turmoil posing a key risk to domestic growth, a large consensus expects the central bank to trim the rate by 25 basis points in the October meeting, with Nomura - the sole outlier - expecting another cut in the December meeting.

Among the key concerns highlighted by economists is the prevailing global uncertainty and its spillover impact on supply chains and India’s exports of labour-intensive sectors such as textiles, leather, gems and jewellery.

“The continued uncertainty regarding the India-US trade deal remains a key risk to monitor. On the domestic front, inflation in perishables is a key factor to watch for as monsoon tiptoes at the end stage,” noted Elara Capital.

Case for two rate cuts

Japan-based Nomura is singular in its expectations of two rate cuts from the central bank. With inflation expectations easing and underlying inflation now below the RBI’s 4 percent target, Nomura expects the central bank to cut rates twice more, 25 basis points each in October and December, which would bring the repo rate to 5 percent.

Following the pause in August, Nomura said, “We believe this was a tactical pause to assess the impact of past cuts and the impact of U.S. tariffs, while keeping some powder dry and retaining policy credibility. The MPC’s data-dependent approach has left the door open to future cuts, even if it did not explicitly signal one.”

According to the brokerage, the RBI’s growth forecast for FY26 (6.5 percent) is too high, as Nomura believes GDP growth for the financial year may clock in at 6.2 percent.

Case for a cut in October

Madh Arora at Emkay Global noted that with the impending global trade reset likely to be choppy, downside risks to growth will be increasingly evident and could open up space for some easing in the remaining year, even as the Governor seems to have set a high bar for further cuts.

According to Barclays, the easing cycle is likely to end in October, with a 25 basis point cut and a terminal rate of 5.25 percent. Following the easing, the GDP growth data, along with trade/tariff talks, will be closely watched.

JM Financial noted that bond markets seem to think the RBI’s rate-cut cycle is over after the 50 basis point cut in June 2025. The yields have risen, with the yield curve steepening by 25 basis points, and the benchmark yields are up 20 basis points. Regardless, the brokerage also still believes that another cut in October is likely, as the impact of US tariffs is still unfolding.

Case for no rate cuts

Kotak Institutional Equities and CareEdge Ratings expect a prolonged pause from the central bank from hereon. The only factor that could lead to a cut is if the growth outlook deteriorates meaningfully and/or FY2027 inflation estimates start getting revised downwards.

CareEdge Ratings noted that inflation in Q4 is projected to average well above 4 percent, and for FY27, it is expected to average above 4.5 percent. “Accordingly, we do not anticipate further rate cuts unless economic growth weakens significantly.”

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