RBI MPC begins today: Will US tariffs trigger a rate cut?

India Today

11 hours ago

The Reserve Bank of India's Monetary Policy Committee (MPC) begins its three-day meeting today, August 4. The decision of the meeting, led by RBI Governor Sanjay Malhotra, will be announced on Wednesday, August 6.The meeting comes at a time when the global trading ecosystem is facing new challenges after the US imposed a 25% tariff on Indian goods.The MPC is meeting after cutting interest rates by 100 basis points across its last three policy meetings. The policy stance has remained 'neutral'. However, with inflation easing and growth concerns rising, there is now debate over whether the central bank will go for another rate cut or pause.CHANCE OF A RATE CUT REMAINSExperts say the MPC has reasons to consider another cut. The latest trigger is the US move to raise tariffs, which may affect exports and slow down economic activity.Japan-based brokerage Nomura said there is a 35% chance of a rate cut this week. While it expects a 25 basis points (bps) cut in October and December, it said a surprise cut in August is not ruled out.Elaara Capital said in a note that risks to growth have increased and inflation remains under control."The July inflation is likely to be around 2%, which is at the lower end of the RBI's tolerance band. If the US tariffs start to affect growth more sharply, the chance of a bigger rate cut—up to 50 bps—could rise. However, we do not expect inflation to rise unless there is a sudden shock to global supply chains," the firm added.A report by the State Bank of India (SBI) also predicted a 25 bps rate cut in this MPC meeting. It said a front-loaded cut now could help boost credit demand ahead of the festive season. The report also pointed out that repo rate cuts before Diwali have historically led to strong credit growth during the festive period.INFLATION HAS BEEN FALLINGRetail inflation in India has been cooling for the past few months. In June, the Consumer Price Index (CPI) came in at 2.1%, the lowest reading since January 2019. This sharp fall has been driven by falling food prices and a favourable comparison with high prices last year.According to Barclays, July CPI inflation could fall even further, possibly to 1.5%.If that happens, it would bring down the average for the first quarter of FY26. Barclays has already cut its full-year inflation estimate to 3.5%, below the RBI's forecast of 3.7%. It said the lower inflation numbers may give the RBI more room to support growth.IMPACT ON HOME LOAN EMIsA rate cut would be welcomed by consumers, especially those looking to borrow for homes or businesses. Pradeep Aggarwal, Founder and Chairman of Signature Global (India) Ltd, said a 25-bps cut would add to the positive mood in the housing market.'With inflation staying low, the RBI has some space to cut rates again. A lower repo rate could make loans cheaper, especially when many banks are already offering home loans below 8%. This could encourage more home buyers to act quickly,' he said.However, he also said that even if the RBI keeps rates unchanged, the current low-rate environment is already helping the housing sector. 'The market is doing well because of good buyer interest, better affordability, and easy access to loans,' he added.With global trade under pressure and the US tariffs now in place, the RBI may have to weigh its options carefully. Experts believe the central bank may stick to its 'neutral' stance while remaining ready to act if growth slows further.The meeting outcome on August 6 will be closely watched, especially by markets, banks, and borrowers. Whether the RBI cuts the rate or holds steady, it will likely signal its future path based on inflation trends and the evolving trade situation.- Ends
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