RBI policy meet: Markets split over prospect of another possible rate cut

The Reserve Bank of India’s Monetary Policy Committee (MPC) is set to deliver its latest verdict on Wednesday, 6 August, with investors and analysts divided over whether there will once again be a surprise hike.

Since taking charge, RBI governor Sanjay Malhotra has shown a preference for unconventional timing and bolder-than-expected measures. In February, he initiated the first rate cut in nearly five years, reducing the repo rate by 25 basis points (bps) to 6.25 per cent. This was followed by a shock 50 bps cut in June — double market forecasts — along with a 100 bps reduction in the cash reserve ratio (CRR), releasing significant liquidity into the banking system.

Against this backdrop, the meeting has acquired fresh intrigue. While the consensus view among economists is that the central bank will hold rates steady at 5.5 per cent, a section of the market is unwilling to dismiss the chance of another cut.

State Bank of India has flagged the possibility of a 25 bps reduction, describing such a move as an “early Diwali” gift to spur lending ahead of the festive season. Historical data, it noted, show that repo cuts in the run-up to Diwali have boosted credit growth during the celebrations.

Some market voices also see policy support as a buffer against external headwinds. Harshal Dasani, Business Head at INVasset PMS, believes the RBI could opt for another 25 bps cut to shield the economy from the fresh tariffs imposed by US President Donald Trump, at a time when inflation remains comfortably within target.

Brokerage Nuvama Institutional Equities, however, expects the MPC to pause, pointing out that it has already frontloaded rate reductions. Yet, it acknowledged that the case for further easing is building, citing slowing momentum across multiple indicators — from bank credit growth and auto sales to exports and corporate profitability.

CareEdge data underlines the deceleration. As of mid-June, bank credit stood at Rs 183.1 lakh crore, up 9.6 per cent year-on-year but well below the 15.5 per cent growth a year earlier. Deposit growth continues to outpace loan demand, while passenger vehicle sales fell 1.4 per cent and two-wheeler volumes slumped 8 per cent in Q1 FY26.

Still, analysts caution that a rate cut may not deliver sustained gains for equities. Dasani argued that the market’s reaction would depend on how the move is framed: “If it is seen as a proactive step to support growth amid global challenges, investors may welcome it. But if it signals deeper worries about the economy, it could push markets into defensive sectors such as FMCG and IT.”

The macro backdrop appears to give the RBI room to manoeuvre. Consumer price inflation is running at 4.8 per cent, core inflation has been easing, GST collections hit Rs 1.72 lakh crore in July, and GDP growth for Q1 FY26 is expected to hover around 7 per cent.

Even so, concerns remain. Vinit Bolinjkar, Head of Research at Ventura Securities, believes the central bank may hold fire given the rupee’s recent weakness. “A rate cut could provide a temporary lift to equities, but without a resolution to the ongoing tariff standoff, the market is unlikely to break out of its current range,” he said.

Vaibhav Vidwani, Research Analyst at Bonanza, also expects a mixed reaction, noting that banks, automobiles and housing-related stocks might benefit in the short run. Others, like Ajit Mishra of Religare Broking, warn that another rate cut could instead unsettle sentiment if it is read as a sign of deeper economic stress.

For now, the Sensex and Nifty remain rangebound, capped by foreign investor outflows, tariff concerns and muted earnings growth. Whether Malhotra opts for caution or delivers a third surprise could set the tone for markets well into the festive season.