A potential reduction of 25 basis points in interest rates by the Reserve Bank of India (RBI) is expected to be announced in August, as per a report by the State Bank of India (SBI), to stimulate credit growth prior to Diwali.

A potential reduction of 25 basis points in interest rates by the Reserve Bank of India (RBI) is expected to be announced in August, as per a report by the State Bank of India (SBI), to stimulate credit growth prior to Diwali.

Headline: RBI Expected to Announce Repo Rate Cut, but Prospects Remain Uncertain

The Reserve Bank of India (RBI) is anticipated to announce a 25 basis points (bps) repo rate cut in the upcoming Monetary Policy Committee (MPC) meeting scheduled from August 5 to 7. However, the likelihood of such a cut is not high given the RBI's recent neutral stance and mixed market expectations.

According to the State Bank of India (SBI) report, a 25 bps repo rate cut could potentially boost credit growth, especially during the festive season. Historically, a lower interest rate environment before Diwali has been beneficial for credit demand, as consumers tend to spend more during this period. The SBI report also suggests that a rate cut could bring an "early Diwali" by stimulating credit growth.

However, the RBI has already reduced rates by a total of 100 basis points earlier this year and has shifted its stance from "Accommodative" to "Neutral," indicating a more cautious approach despite low inflation. Inflation in India is notably low (around 2.1% in June 2025), which typically supports easing to encourage borrowing. However, the RBI's caution may temper immediate further cuts.

Market expectations and expert views are mixed: some anticipate a 25 bps cut, while others expect the RBI to pause and hold rates steady in August, preferring to observe inflation and growth trends more before cutting further.

If the RBI does cut the repo rate, it may ease borrowing costs for banks, which can translate into cheaper loans for businesses and consumers, thereby supporting credit growth. However, the transmission of rate cuts to actual credit growth depends on banking sector willingness and overall economic conditions.

The SBI report warns against making a Type II error by not cutting rates now, assuming low inflation is temporary. Delaying a rate cut until inflation drops further or growth slows more visibly may cause deeper and long-lasting damage to the economy.

In addition to the potential repo rate cut, the RBI's recent approval of the scheme of amalgamation of fraud-hit New India Co-op Bank with Saraswat Co-op Bank is another significant development.

Meanwhile, the SBI report also notes that corporates are using other funding sources in the low-interest rate regime, leading to low credit growth. GST collection has risen to ₹1.96 lakh cr, but the net growth has slowed. The report also explains that the marginal benefit of waiting is low, while the cost of inaction in terms of forgone output and investment sentiment is likely to be significant.

Residential launches have dipped by 5% in H1 CY25 amid market caution and rising costs, according to CREDAI. Empirical evidence suggests a strong pick-up in credit growth whenever the festive season has been early and has been preceded with a rate cut, according to the SBI report. This year, the festive season in FY26 is also frontloaded.

Central banks operate with a dual mandate of price stability and output stabilization. Monetary policy works with a lag, and delaying a rate cut until inflation drops further or growth slows more visibly may cause deeper and long-lasting damage to the economy, as per the SBI report.

[1] India Inflation Data: June 2025 [2] Bloomberg: RBI Rate Cut Expectations [3] The Hindu BusinessLine: RBI Rate Cut Expectations [4] SBI Report: Impact of Repo Rate Cut on Credit Growth [5] ETMarkets: RBI Rate Cut Expectations

1. The upcoming Monetary Policy Committee (MPC) meeting by the Reserve Bank of India (RBI) is expected to announce a potential 25 basis points repo rate cut.
2. If the RBI cuts the repo rate, it could boost credit growth, especially during the festive season, according to the State Bank of India (SBI) report.
3. Despite low inflation, the RBI's recent neutral stance and mixed market expectations may prevent it from making a 25 bps repo rate cut.
4. A lower interest rate environment could stimulate investment in both businesses and personal finance, as consumers might spend more during festive seasons.
5. The RBI's careful approach to monetary policy can impact financing options for banks, making loans cheaper for businesses and consumers.
6. The SBI report warns against delaying a rate cut, rather opting to reduce rates now to avoid potential long-term harm to the economy.
7. Central banks, like the RBI, are responsible for maintaining both price stability and output stabilization, suggesting that monetary policy decisions can have far-reaching effects on the economy.

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