Will RBI Cut Rates Again in Upcoming MPC Meeting?
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Synopsis
Morgan Stanley predicts a possible rate cut by the RBI in its upcoming October meeting, citing global economic factors and inflation trends. This article delves into the implications of such a decision and what it means for the Indian economy.
Key Takeaways
- The RBI maintained its policy rate at 5.5 percent.
- Another rate cut is anticipated in the upcoming MPC meeting.
- Inflation projections have been revised down to 3.1 percent for FY26.
- External demand remains uncertain due to geopolitical tensions.
- The RBI is closely monitoring domestic growth and inflation dynamics.
New Delhi, Aug 6 (NationPress) According to Morgan Stanley's assessment on Wednesday, the Reserve Bank of India (RBI) is likely to implement an additional rate cut during its fourth quarter meeting (expected in October), especially in light of challenges stemming from tariff-related issues.
In a unanimous decision, the RBI Monetary Policy Committee (MPC) chose to keep the policy rate steady at 5.5 percent, aligning with market expectations. All members agreed to maintain a neutral stance.
As noted in the Morgan Stanley report, the policy statement highlighted that the currently favorable trend in headline inflation is expected to be temporary, largely due to decreased food prices. Economic growth is reportedly on track, and the effects of previous rate cuts are beginning to materialize, justifying the pause.
The RBI retained its GDP growth forecast at 6.5 percent year-on-year for FY26, supported by strong domestic demand.
However, external demand remains a concern due to ongoing uncertainties, driven by tariff negotiations, geopolitical tensions, and fluctuating global financial markets.
Regarding inflation, the RBI has revised its headline Consumer Price Index (CPI) projections down to 3.1 percent for FY26, from a previous estimate of 3.7 percent, mainly due to lower near-term inflation expectations.
The favorable inflation outlook is supported by reduced food inflation, even though core CPI remains slightly above the 4 percent threshold, as per the global financial institution.
The MPC has indicated a cautious approach by opting to pause, stating that, "Considering the current macroeconomic conditions, outlook, and uncertainties, it is prudent to maintain the policy repo rate at 5.5 percent and observe the further impact of the previously implemented rate cuts on credit markets and the wider economy.
The committee also resolved to closely monitor incoming data and the evolving dynamics of domestic growth and inflation to determine the most appropriate monetary policy direction.
The key factors to watch include high-frequency growth indicators, the trajectory of headline inflation, and developments related to trade agreements, as outlined in the report.
Point of View
I emphasize that the RBI's decision-making process is crucial for stabilizing the economy and addressing inflation concerns. The anticipated rate cut could have far-reaching effects on both consumers and businesses, and it’s essential for us to stay informed and proactive in these changing times.
NationPress
08/10/2025
Frequently Asked Questions
What is the current policy rate set by RBI?
The current policy rate set by the RBI is 5.5 percent.
When is the next RBI MPC meeting scheduled?
The next RBI MPC meeting is likely scheduled for October.
Why does Morgan Stanley believe a rate cut is likely?
Morgan Stanley cites global economic challenges and the temporary nature of low inflation as reasons for a potential rate cut.
What is the GDP growth forecast by RBI for FY26?
The RBI has maintained its GDP growth forecast at 6.5 percent year-on-year for FY26.
What are the key factors influencing RBI's decision?
Key factors include inflation trends, global financial market volatility, and domestic economic conditions.
