On Wednesday, the Reserve Bank of India is expected to announce a key policy decision regarding the final 25-basis-point repo rate cut. This comes amidst Trump's tariff decisions.
Inflation and Tariffs
Retail inflation cooled to just 2.1% in June—well below the RBI’s 4% target—strengthening the case for a cut. Yet the surprise U.S. move to impose 25% tariffs on Indian goods from August 7 has complicated the outlook. According to Business Today, while most economists expect the central bank to hold the rate at 5.5%, the sharp drop in inflation and new trade headwinds have sparked debate.
Micro, Small and Medium Enterprises
One expert noted that a modest cut could cushion MSMEs ahead of the crucial festive season. “A 25-basis-point rate cut could help MSMEs absorb external shocks, maintain credit access, and power job-creation,” the expert said. According to CNBC, "Looking at the broader economic picture, inflation has dropped to a 77-month low. The Consumer Price Index (CPI) is expected to average below 3% for the year."
RBI's Final Repo Rate Cut
Some economists warn that delaying a rate cut now could be a costly "type two error". It will hurt growth even though inflation is already under control. The Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, kicked off its three-day meeting on Monday amid mounting calls for a final 25 basis point repo rate cut.
Will Inflation Or Tariff Announcements Shift RBI's Stance?
“Recent inflation or tariff announcements are unlikely to shift the RBI’s stance,” said Madan Sabnavis of Bank of Baroda, who expects a status quo. However, ICRA’s Aditi Nayar warned that the U.S. action poses “a downside risk to GDP growth” and could tip the RBI toward a final rate cut.
