Another rate cut on the horizon? RBI to likely cut the repo rate by 25 bps repo in August

RBI has already eased rates by a total of 100 bps since February, twice by 25 bps and once by 50 bps in June, bringing it to 5.50 percent. Now, according to forecasts, another 25 bps cut is expected in the August policy meeting, lowering the rate to 5.25 percent. This isn’t just technical – it is RBI striving to balance economic growth to tame inflation, directly affecting your borrowing, spending and investment outlook.

What’s motivating this next rate cut?

• Inflation is cooling – Retail inflation has eased significantly, moving well below RBI’s 4 percent target. That gives the central bank room to ease.
  
• Growth trends remain mixed – Urban demand is subdued, while rural consumption remains comparatively robust. Exports are picking up to the US while global demand still remains fragile.
  
• Global uncertainties linger – Volatile oil prices, geopolitical tensions continue to overshadow the economic landscape.
  
• Foreign investor interest reviving – Post the earlier outflows, foreign investors are returning to Indian bonds, anticipating rate cuts.
  

Together, these factors point toward weakening inflation and lingering economic slack, and thus could result in a cautious rate cut.

How exactly does a 25 bps repo cut affect you?

• Loan EMIs might shrink – If you have a home, auto, personal or education loan tied to benchmarks linked to RBI’s repo rate, you could see minor monthly savings. For example, around ₹1,000–2,000 on a ₹30 lakh home loan.
  

• Fixed deposit returns may dip – If you’re a saver, the interest rates offered on new FDs are likely to trend downward as banks follow the repo cut.
  

• Business borrowing costs ease – Cheaper credit could help boost business investment and capex, potentially driving growth and employment.
  

• Bond yields could soften – The 10‑year benchmark yield has been trending lower; another rate cut could thus further reduce borrowing costs for corporates and the government.
  

Could there be downsides or limits to the impact ?

• Transmission isn’t immediate – Banks don’t instantly pass on rate cuts; you may notice savings weeks or even months later.
  
• Structural constraints remain – As former RBI Governor Raghuram Rajan noted, rate cuts aren’t magic bullets.
  Improvements in regulatory clarity, public investment, and ease of doing business are also needed.
  
• Global headwinds could force a pause – If global inflation picks up or the US Federal Reserve holds rates, RBI may halt or reverse easing.
  

What happens at the August MPC meeting?

At its bi‑monthly meeting, RBI’s Monetary Policy Committee (MPC) will reassess macro data – CPI, WPI, GDP growth, oil prices, global trends – and decide whether to cut rates. Analysts see August as likely for a 25 bps cut, though some feel RBI might pause until later in the year.

After August, what might come next?

Some analysts expect further cuts into fiscal 2026 if inflation remains subdued. Others believe RBI may hold rates steady, pending better transmission or clearer growth signs.

For you, what’s the smart short‑term move?

• If you’re a borrower: Talk to your lender about loans linked to EBLR or MCLR—cuts typically get passed on to these.
  
• For savers: Laddering your deposits or locking in rates now may be prudent before they drop further.
  
• Fixed income investors: Lower interest rates may make new bonds attractive but you need to watch out for duration risk.
  
• For equity investors: A friendly rate environment often supports stocks; sectors such as banks and consumer durables may benefit.
  

Looking beyond August

A repo rate of 5.25 percent may be the lowest in nearly two years. But the real shift depends on RBI’s vigilance around core inflation, GDP trends, and credit flow. And as pointed out earlier, policy easing alone won’t resolve deeper structural issues.

What happens next?

• Short term: Expect continued accommodative monetary conditions, with a positive sentiment in rate-sensitive sectors.
  
• Medium term: Monitor industrial output, inflation trends and global developments as these will shape whether the August move is isolated or part of a broader cycle.
  
• Long term: While RBI may meet its inflation targets, sustainable growth will be basis deeper reforms like investment-friendly measures, labour flexibility and fiscal discipline.
  

Conclusion

When RBI cuts the repo rate by 25 bps in August, it will mean more than just a news headline – it will have an actual impact on your EMIs, savings, business costs and market returns. If you are a borrower, investor or just being vigilant about the economy, you will now know whether the RBI is ultimately leaning towards stability or stimulus – enabling you to make more informed financial decisions.

Also Read:

RBI cuts repo rates third time in a row - What does it mean for you?