August 2025 RBI MPC minutes sees merit in “Wait and Watch”

21 Aug 2025 , 09:57 AM

AFTER 100 BPS RATE CUT, TIME TO PAUSE

When the 3-day meeting of the RBI Monetary Policy Committee (MPC) concluded on August 06, 2025; it was unanimously decided by members to hold status quo on repo rates at 5.50% and also maintain the stance of monetary policy at neutral. The broad theme was; since RBI had already cut rates by 100 bps between February and June 2025, it was time to pause and let the transmission sink. However, the MPC lowered projected inflation for FY26 by 60 bps to 3.1%, reducing inflation estimate since Feb-25 by 170 basis points. On August 20, 2025, the MPC minutes were published, outlining detailed member perspectives. Here is a gist.

• NAGESH KUMAR SAYS WANTS TRANSMISSION TO SINK IN

Nagesh Kumar underlined that with the tariff uncertainty being an overhang, there was a case for the RBI to boost growth. However, this must be seen in the backdrop of the fact that the RBI has already cut rates by 100 bps between February and June 2025. In addition, the 100 bps cut in CRR will also take effect between September and November 2025. Nagesh Kumar was of the view that a wait and watch approach at this juncture will not only allow the transmission of rate cuts to fully sink in, but also provide greater clarity on the tariff situation. Nagesh Kumar voted for status quo on rates and monetary stance.

• SAUGATA BHATTACHARYA WANTS TO WAIT OUT THE FLUIDITY

Saugata Bhattacharya underlined that most of the high frequency indicators did not hint at any challenges to GDP growth at this point. It would therefore be the right time to step back and objectively assess the impact of rate cuts on credit costs, and credit growth. He was also of the view that the tariff hikes imposed by the US and the likely punitive tariffs had created a degree of macroeconomic ambiguity. This could call for a policy shift at a later stage and it is appropriate that RBI holds back some of its monetary ammunition in a fluid  tariff situation. Bhattacharya also voted for status quo on repo rates, and on monetary stance.

• PROF RAM SINGH FEELS INFLATION REBOUND IS VERY LIKELY

Ram Singh of the Delhi School of Economics underlined that, while inflation was meaningfully lower and growth was robust, things could change. For instance, if heavy tariffs were imposed, then India could face imported inflation. Even the RBI projection for FY26 is pencilling in a rebound in inflation in the third and fourth quarter. Considering the risk of a sharp rebound in inflation, Ram Singh feels it would be appropriate to make decisions based on long-term sustainable inflation rate, rather than short-term inflation. Also, policy direction will be decided by sectoral impact of export tariffs. Ram Singh also voted for status quo on rate and monetary stance.

• RAJIV RANJAN FOCUSES ON CORE INFLATION CHALLENGE

According to Rajiv Ranjan, the inflation has been softer but it would help to understand the underlying reason. The fall in inflation has been largely driven by volatile food inflation, which dipped into negative in the last 2 months. However, core inflation remains elevated at 4.1%, despite being 30 bps lower in July. Hence, he feels that the balance of risks calls for status quo on rates. Also, the neutral stance would be appropriate considering that the CRR cuts will take effect between September and November.

• POONAM GUPTA FAVOURS WATCHING BASE IMPACT ON INFLATION

Dr Poonam Gupta underlined that the base effect had played a big role in sobering food and headline inflation in recent months. However, once the base effect is neutralized, we could see inflation rising once again. That needs to be factored in. Gupta also underlined that it was not just the overall 100 bps cut, but the fact that 50 bps were front-loaded in June; that made a strong case for status quo on rates in August. According to Poonam Gupta, a wait and watch approach at this juncture will enable hitting multiple birds with one stone.

• RBI GOVERNOR SAYS, TIME FOR WATCHFUL MONETARY POLICY

The RBI governor believes that India is facing the dual impact of benign inflation on one side, and tariff uncertainty on the other. Between February and June, the mandate was clearly to capitalize on falling inflation and boost growth. The idea was also to boost the domestic business confidence, amidst tariff uncertainty. That has been largely achieved, and now we have a situation where global macro risks could manifest. Hence, the time is appropriate for a wait and watch approach. It was the time for a pause on policy action.

IS IT THE END OF THE RATE CUT CYCLE?

The minutes are fairly explicit; this is a pause and not the end of the rate cut cycle. If the inflation remains benign for August and September and if the tariff risk turns out to be a whimper, then the RBI may have adequate reasons to consider another rate cut of 25 bps in the October policy. The pause, is more a temporary decision, as we await macro clarity!