The June RBI policy was an aggressive policy statement. It not only cut repo rates by 50 bps, but also announced a 100-bps cut in CRR (cash reserve ratio) in phases till November 2025. This took the total rate cuts to 100-bps since the first rate cut in February 2025. This was accompanied by the RBI decision to shift the monetary policy stance back from “Accommodative” to “Neutral.” It is almost like asking the markets not to expect further rate cuts for some time.

What has positively surprised the Indian markets is the sharp fall in inflation. In June 2025, the consumer inflation (CPI) fell to a 77-month low of 2.10%. That is well below the RBI median target of 4% and marginally above the base minimum inflation floor of 2%. Clearly, the sharp fall in inflation has given the RBI room to take up one more rate cut. There are also other reasons, apart from inflation falling to multi-year lows. Growth has been struggling, and if you look at the core sector lead indicator, it has grown at just 1.3% in Q1FY26. That triggered the belief that GDP growth for Q1 will be tepid and needs a rate cut boost. 

The RBI may, instead, prefer to take a more holistic view of rate cuts. It has cut rates by 100 bps since Feb-25 and has also initiated a 100-bps cut in CRR. That has already magnified the impact of rate cut to much beyond 100 bps. In addition, the RBI has been giving a lot more weightage to the tone and the nature of its communication, something that the market heavily counts on. If the stance is changed back to neutral and RBI still cuts rates, it may sound out of place. Hence, the RBI may abstain from rate cuts in its August 2025 policy, and possibly, take up the next rate cut in October policy. That will also allow the RBI more inflation and growth data points to justify its rate action decision. 

The RBI decision on rates in August will have the benefit of assessing the FOMC July statement. The Fed members like Chris Waller have been heavily in favor of a rate cut when the FOMC meets on July 30, 2025. The RBI would be closely watching the Fed action as well as the Fed outlook for upcoming policies. If the Fed chooses to maintain status quo on rates or just takes up a one-off rate cut in July; then the RBI may not tamper with the rates in its August policy. If the Fed language is strongly dovish, which looks very unlikely at this point, then the RBI may consider a rate cut in August. For now, it looks like over to October!