First View
Capital Economics economist Shilan Shah on RBI Policy
This story was originally published at 11:56 IST on 6 August 2025
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MUMBAI - Shilan Shah, deputy chief emerging markets economists, Capital Economics, said the following on the Reserve Bank of India's third bi-monthly monetary policy for 2025-26 (Apr-Mar) detailed on Wednesday:
The RBI's decision to keep the repo rate on hold at 5.50% while maintaining its "neutral" policy stance reinforces our non-consensus view that the easing cycle is at an end. The rupee has strengthened a touch and the 10-year yield is up slightly since the announcement, suggesting that some market participants were positioned for a cut.
In the event, RBI Governor Sanjay Malhotra sounded relatively sanguine about the economic outlook, noting that "domestic growth remains resilient". Malhotra made only a passing mention of the uncertainties from "tariff announcements and trade negotiations", suggesting either that the MPC is not especially worried about the impact on GDP from Trump's 25% tariff on India (though Trump has indicated this will rise today due to India's purchases of Russian oil) or that it feels the tariff rate will eventually drop.
On inflation, the governor noted the sharper-than-expected fall in the headline rate in June but focussed more on the likelihood of it rising back towards the RBI's 4% target over the coming months as "unfavourable base effects and demand side factors from policy actions come into play". This is a view we share.
In all, there's little in Wednesday's policy announcement to change our view that the easing cycle has come to an end. Prior to today, a majority of analysts had been expecting one more 25 bps cut to the repo before the end of the year. End
Compiled by Shubham Rana
Filed by Ashish Shirke
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