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Informist, Monday, Aug. 4, 2025

 

MUMBAI – The Reserve Bank of India's Monetary Policy Committee is expected to keep the benchmark repo rate and its stance unchanged at the meeting this week, but may revise its projection for inflation and growth downwards, Goldman Sachs said in a research note. Going forward, Goldman Sachs sees the central bank cutting the benchmark rate by 25 basis points in the Oct-Dec quarter, taking the repo rate to 5.25%.

 

The Monetary Policy Committee lowered the repo rate by a bigger-than-expected 50 bps in June as it saw a need to support economic growth in the face of global uncertainties. India's retail inflation at 2.10% in June, has declined for eight consecutive months now and stayed below the RBI's medium-term target of 4.0% for five months in a row.

 

Goldman Sachs has lowered its forecast for India's headline inflation to 3% for the current financial year ending March. However, the investment bank expects core inflation to remain above the RBI's target in 2026, it said. "Core inflation is increasing mainly driven by higher gold and core services inflation, while core goods inflation remains contained," it said.

 

The bank sees RBI cutting the repo rate by 25 bps in Oct-Dec due to downside risks to the growth and inflation trajectory. Due to the announcement of 25% tariffs on Indian exports by US President Donald Trump and an unspecified penalty related to India's energy and defense purchases from Russia, Goldman Sachs has lowered India's GDP growth forecast by 10 bps in 2025 and 20 bps in 2026 to 6.5% and 6.4%, respectively. "In our view, some of these tariffs are likely to be negotiated lower over time, and further downside risk to the growth trajectory mainly emanates from the uncertainty channel...," the bank said.

 

In its June policy, the RBI retained its GDP growth projection of 6.5% for FY26. The central bank also retained its growth estimates for each of the four quarters of the current fiscal year. In the quarter ended March, India's GDP growth rose to a four-quarter high of 7.4%, thanks to rise in government's capital expenditure and pick-up in construction activity.

 

However, Goldman Sachs said the RBI may not resort to cutting the policy rate any further if a rapid and mutually beneficial resolution of US-India trade negotiations is reached and due to a quicker-than-expected rise in core inflation--excluding petrol, diesel, gold and silver--towards 4.0%. "Should either of these scenarios materialize, we would expect the RBI may opt to maintain the current 5.50% repo rate and instead rely on the liquidity infusion from the phased 1% CRR (cash reserve ratio) reduction, beginning September, to aid monetary policy transmission," the bank said. 

 

MUFG Bank expects the RBI to cut the policy repo rate twice in tranches of 25 bps each in the October and December meetings. Domestic positives such as low inflation, a decent southwest monsoon, coupled with supportive monetary and fiscal policies are the key drivers which have led MUFG Bank to forecast two cuts instead of one earlier.  End

 

Reported by Kabir Sharma

Edited by Ashish Shirke

 

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