RBI holds repo rate steady: SBI Research says 2025 rate cut now unlikely

The Monetary Policy Committee (MPC) has unanimously decided to maintain the repo rate at 5.5%, reflecting a cautious stance amid ongoing global uncertainties, including the impact of trade tensions and tariff wars. With most rate cuts already frontloaded, the Reserve Bank of India (RBI) has chosen to pause and assess incoming data before making further moves. The committee also reaffirmed its neutral policy stance, signaling a balanced approach to managing inflation and supporting growth. This decision, as highlighted in the latest SBI Ecowrap, reflects a cautious, data-driven stance amid evolving economic dynamics, both domestic and global.

SBI Research termed this pause a "technical pause", not ruling out the possibility of a future rate cut, but underlining that the bar for such a move in 2025 has now risen significantly.

Here's why:

Inflation is within range

One of the primary triggers for any rate cut is sustained low inflation. In its latest projection, the RBI has revised its FY26 CPI inflation estimate down to 3.1%, factoring in healthy monsoon progress, strong Kharif sowing, adequate foodgrain reserves, and robust buffer stocks.

However, this relief could be temporary. While inflation is expected to stay below 3% till Q3 FY26, it is projected to rise sharply to 4.9% in Q1 FY27. This trajectory keeps inflation in the “uncertain band,” making the RBI wary of acting too soon and risking a reversal later.

Growth momentum is strong

India’s economic momentum remains intact. The RBI has retained its FY26 GDP growth forecast at 6.5%, driven by resilient private consumption, buoyant government capital expenditure, and robust activity in construction and services sectors. With economic growth already frontloaded and demand indicators improving, there’s less urgency for rate cuts to stimulate growth.

Front-loaded rate cuts

SBI Research noted that a large portion of rate easing has already been front-loaded, leaving limited room for further accommodation. Unless there’s a major shift in inflation or growth trends, the central bank has little incentive to act quickly.

Moreover, bank credit growth has slowed (to 9.8% as of July 2025), but overall financial resource flows to the commercial sector have increased due to a rise in non-bank credit. This offsets concerns about liquidity shortages or credit crunches, which might have otherwise warranted a rate cut.

SBI Research concluded that 5.5% may be the terminal rate, unless inflation undershoots significantly. Even in such a scenario, the maximum expected cut would be just 25 basis points, and the timing remains uncertain.

With global trade uncertainties, a volatile commodity environment, and India’s domestic resilience, the RBI is likely to wait and watch. For now, rate stability, not rate cuts, appears to be the dominant theme.