RBI Likely To Keep Repo Rate Unchanged In August, Economists Expect Hawkish Pause Amid Inflation Risks

Mumbai: The Reserve Bank of India (RBI) is widely expected to keep the benchmark repo rate unchanged in its August monetary policy review, with economists predicting that the central bank will continue to focus on inflation risks despite stable domestic growth.

A PTI poll of 10 economists and treasury heads found that most respondents expect the Monetary Policy Committee (MPC) to retain its 'Neutral' policy stance while adopting a hawkish tone.

The three-day MPC meeting is scheduled from August 3 to August 5.

Inflation In Focus

Economists believe the RBI will remain cautious as inflation risks have increased due to elevated crude oil prices, geopolitical tensions and an uneven monsoon.

ICRA Chief Economist Aditi Nayar said core inflation remains under control, making a status quo on interest rates the most appropriate decision for now. However, she expects the central bank to communicate caution through its policy guidance.

RBI Governor Sanjay Malhotra has also repeatedly stressed that inflation remains the central bank's top priority, with the progress of the monsoon being a crucial factor.

Rate Hike Expectations

While economists expect no immediate policy change in August, many believe the RBI could raise interest rates later in FY27 if inflation pressures continue.

The central bank has already reduced the repo rate by a cumulative 1.25 percentage points since last year to support economic growth.

Balasubramanian R, Head of Treasury at Dhanlaxmi Bank, expects the RBI to maintain a hawkish pause, saying supply-driven inflation should be monitored before any further policy action.

Growth And Liquidity

Views on India's growth outlook remain mixed. Some economists expect resilient domestic demand to support a higher GDP growth forecast, while others see risks from slowing global demand, higher energy costs and geopolitical uncertainty.

IDFC FIRST Bank economist Gaura Sengupta said inflation is largely driven by supply-side factors, making fiscal measures more effective than monetary tightening.

Most economists also expect the RBI to avoid major liquidity measures in August, while continuing variable-rate repo auctions and open market operations if required to maintain orderly market conditions.