Ongoing trade talks with US may see RBI hold rates on August 6, say economists

Reserve Bank of India

The Reserve Bank of India (RBI) is expected to hold interest rates in its monetary policy review on August 6, as ongoing trade negotiations with the US may prompt the central bank to adopt a "wait and watch" approach, economists have told Moneycontrol, even as America piles tariff pressure on India.

Last week, US President Donald Trump announced a higher than expected 25 percent tariff on Indian goods and a yet to be specified penalty for buying Russian oil and arms.

America has been ratcheting up pressure on India, especially for buying Russian oil even as the two sides continue talks for a trade deal. A US trade delegation is expected in New Delhi for talks later this month.

“Trade negotiations are still ongoing, and there is still a possibility that a deal can be reached,” said Gaura Sengupta, economist at IDFC First Bank, suggesting that the RBI may avoid any policy shift until there is greater clarity on external developments.

Suresh Ganapathy, Managing Director, Head of Financial Services Research at Macquarie Capital also expect a status quo in August policy.

"If there is indeed additional 25 bps coming in August, then bank margins are gone for another quarter. They will start recovering only from Q4FY26 onwards," Ganapathy added.

Last week, Moneycontrol poll of 17 economists, bank treasury heads and fund managers pointed to status quo on interest rates in the bi-monthly review.

Economists believe that while external risks have risen, the RBI is likely to keep its stance “neutral”. Some foresee a rate cut of 25 bps in the October policy, depending on the trajectory of the monsoon, food inflation and clearer domestic growth data.

Q1 GDP figures, due at the end of August, are expected to offer insight into consumption and investment trends.

Sakshi Gupta, economist at HDFC Bank, said she does not expect a rate cut or any revision in the GDP forecast in the upcoming meeting. “There will be no change in the stance either,” she noted.

SBI Research, however, said it expects RBI to continue the frontloading with a 25 bps cut in August policy.

Concerns over the macroeconomic impact of trade measures have grown. Some economists estimate the recently announced tariffs could shave off around 0.3 percentage points from India’s GDP.

Sengupta estimates a 0.2 percentage point downside if the 25 percent tariff stays in effect through March 2026. This does not include potential penalties on crude imports from Russia, the details of which are awaited, she added.