RBI May Cut Repo Rate by 25 bps to 5.25% in August: ICICI Bank

According to a recent report by ICICI Bank, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) could reduce the policy repo rate by 25 basis points (bps) during the upcoming August 2025 policy meeting, bringing the rate down to 5.25%. The report cites favourable inflation trends and a mixed domestic growth outlook as key reasons for the anticipated cut.

Domestic Growth Trends Present a Mixed Picture

The report highlights that India’s economic growth indicators remain uneven. Urban demand continues to stay weak, while rural demand shows resilience. In terms of external trade, goods exports to the United States are improving, but exports to other regions remain subdued. These dynamics, coupled with a lower-than-expected inflation environment, create room for the MPC to adopt a more accommodative stance in the short term.

Inflation Trends Support Policy Easing

Since the last MPC meeting, inflation has remained well below earlier projections, prompting ICICI Bank to revise its FY26 inflation forecast to 2.9%, significantly lower than the RBI’s earlier estimate of 3.7%. The report suggests that this muted inflation scenario provides space for an immediate 25 bps rate cut, particularly as the MPC maintains a neutral stance, basing decisions on evolving data. However, it warns that inflation may rise in Q4 FY26 and FY27 due to the base effect, making August a crucial window for easing.

Global Factors Add to Policy Considerations

Globally, economic uncertainty continues due to tariffs, geopolitical tensions, and oil price volatility. A brief conflict in the Middle East last month triggered a sharp oil price surge. Further, the new tariffs announced by U.S. President Donald Trump, effective August 1, are expected to push inflation higher in the U.S., where inflation already rose to 2.7% YoY in June from 2.4% in May. Despite the U.S. economy’s recent resilience, slowing private hiring and weakening retail sales signal potential stagflation, delaying Federal Reserve rate cuts.

Also Read: RBI Reviews ULI Rollout with Lenders Amid Slow Lending Adoption!

Conclusion

With domestic inflation trending lower, urban demand weakness, and global headwinds, ICICI Bank expects the RBI to seize the August meeting as an opportunity to cut the repo rate by 25 bps to 5.25%. Such a move could provide a timely boost to growth while maintaining monetary stability before inflationary pressures re-emerge later in FY26.

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