RBI likely to hold rates despite Trump's tariff salvo: Mint poll
Most of the economists polled have maintained their previous expectations despite the steep 25% tariff by the US on Indian goods and an additional penalty for importing crude oil from Russia.
Opinions among the 15 economists polled were divided. While 11 economists anticipated the MPC would keep rates unchanged, four predicted that the six-member rate-setting panel would reduce the repo rate by 25 basis points to 5.25%.
The RBI's rate-setting panel is scheduled to announce its policy decision after its 4-6 August meeting. The central bank is also expected to maintain its 'neutral' stance, which allows it to move in either direction.
'We have not changed our views on the basis of the tariff announcement, and are currently sticking to our call of a 25 bps cut in the upcoming meeting. This would largely be driven by a downward revision in the central bank's CPI inflation projections," said Aditi Nayar, chief economist, head- research & outreach at Icra.
Though the last policy saw a 50-basis-point repo rate cut and a 100-basis-point cut in cash reserve ratio (CRR) amid slowing growth and cooling inflation, economists this time are more cautious, given global volatility.
Separately, the transmission of previous rate cuts is still underway and could take some more time to show its effect on the economy.
Most of the economists, therefore, expect the next round of 25 basis points rate cut only in the second half of the year.
RBI governor Sanjay Malhotra, earlier this month, said in an interview with CNBC-TV18 that both lower inflation and a slowdown in growth can be equally important catalysts for potential rate cuts.
That said, economists are not ruling out an impact of higher tariffs and penalties on growth. Most economists are expecting a 20-40 basis points impact on India's growth if the tariffs hit exports to the US.
India's bilateral goods trade surplus with the US has doubled over the last 10 years, growing from $20 billion in FY15 to $40 billion in FY25. This increase has been mainly driven by higher surpluses in sectors like electronics, pharmaceutical products and textiles.
According to Gaura Sengupta, chief economist at IDFC First Bank, the situation remains fluid with trade negotiations still underway, and the central bank may simply flag tariff-related risks in its commentary.
'The announcement is too recent and lacks clarity in terms of implementation. RBI is likely to mention tariff uncertainty as a risk to growth but unlikely to change its FY26 GDP estimate of 6.5%," said Sengupta, adding that nearly half of FY26 is over and significant front-loading of exports to the US by India may cushion the impact on overall growth.
Inflation projection
Since the last monetary policy, consumer price inflation has moderated to a 77-month low of 2.1% owing to a relentless decline in food prices. Inflation is projected to average below the 4% target over the next two quarters, supported by a favourable base and muted food inflation.
However, the headline inflation is projected to start rising from the third quarter and reach above the 4% mark by the fourth quarter of this fiscal year as the favourable base effect wanes.
Economists, therefore, expect the RBI to revise the FY26 inflation forecast marginally lower.
"We expect the RBI to revise its FY26 CPI inflation forecast lower to 3.3-3.4%, from 3.7% earlier, while maintaining the Jan-March'26 and FY27 forecasts at 4.4% and 4.5% respectively," said Kaushik Das, chief economist, Deutsche Bank.
Liquidity, on the other hand, continues to remain in surplus with the RBI conducting variable reverse repo (VRRR) auctions to suck out excess liquidity. As of Wednesday, net liquidity in the banking system stood at a surplus of ₹2.54 trillion, according to the latest data from the RBI. Starting September, the cumulative 100bps CRR cut will come into effect, adding further liquidity of ₹2.5 trillion.
Market participants also expect the RBI to release the revised liquidity framework in the upcoming policy to help anchor short-term liquidity more effectively and provide banks with greater predictability on overnight rates.
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