RBI could drop by another 25 basis points in August; repo rates could drop to 5.25%: ICICI Bank Reports
A report from ICICI Bank shows that the Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) can choose 25 basis points (bps) to lower the policy repurchase rate at the upcoming August meeting, thereby reducing it to 5.25%.
The bank will ease inflation, inequality in domestic demand and uncertain global economic conditions as reasons for recommending lower interest rates.
“We believe this opens up policy space for an additional 25bps lower tax rates, raising the terminal rate to 5.25%. When will MPC lower policy rates? We believe that August will be the right time given the inflation situation.”
Please read also:Explanation: How the monsoon cools food prices, leaving more room for RBI price reduction
Inflation drops opens window for rate action
Inflation has been lower than expected since the last MPC meeting. ICICI Bank has revised its forecast for inflation in the fiscal 26 to 2.9%, significantly lower than the RBI’s early forecast of 3.7%.
The report said the decline provided room for further relaxation, especially given the RBI’s current neutral policy stance. “The downward trend in inflation opens up space for further policy, especially since the MPC currently maintains a neutral stance, which means decisions depend on economic data.”
However, the report warns that inflation is expected to rise again in the fourth quarter and fiscal 27 due to the basic impact, limiting the room for future interest rate action.
Please read also:INDIA’s retail inflation led by RBI tolerance bands below 2% in July: Nomura
Growth Trends in the Economy Mixed Trends
Domestic, the report shows that growth prospects are mixed. Urban demand is weak, while rural consumption remains strong, supported by favorable monsoon conditions and farm activities.
Export trends are also trending uneven freight to the United States, but export trends to other regions are still slow. The bank said these conditions, coupled with low inflation, made August a reasonable window for policy adjustments.
External Risks: Geopolitical and Trade Tariffs on Outlook
Globally, the report labels tariff-related pressures and geopolitical risks as key headwinds. A brief conflict in the Middle East last month led to a sharp rise in oil prices. Meanwhile, the new tariff plan announced by US President Donald Trump has begun to affect inflation.
“U.S. inflation rose from 2.4% in May to 2.7% year-on-year.” Although the U.S. economy has exceeded growth expectations, there are still signs of slower signs of decline in private recruitment and retail sales, which could increase the risk of stagnation.
So far, these factors have prevented the U.S. Federal Reserve from lowering interest rates. However, the report shows that the Fed may be more supportive of lowering interest rates as growth develops further.
