The Reserve Bank of India’s Monetary Policy Committee (MPC) held the policy repo rate steady at 5.50% on 6 August 2025, marking a pause after cumulative rate cuts totalling 100 basis points earlier in the year. This decision came with a “neutral” policy stance, as RBI monitors the impact of previous easing amid global trade uncertainties and subdued inflation pressures.

Amit Somani, Deputy Head-Fixed Income, Tata Asset Management is sharing his thoughts on RBI’s repo rate stance.

RBI delivered a status quo policy by keeping policy rates on hold. The stance is kept at neutral. This is despite significant downward revision of FY26 CPI inflation to 3.1% from 3.7%. GDP forecast for FY26 has been retained at 6.5%.

RBI seems to be allowing time to work its front-loaded policy cut into the banking system, while keeping a watchful eye on longer-run inflation. Impact of emerging tariff situation on broad economy, markets, and currency continues to play on RBI’s mind. We feel the hawkish tone of policy may create volatility in markets in the near term; however, a firm eye on inflation should provide comfort to markets in the longer term.

Liquidity will continue to remain easy, also aided by the planned CRR cut beginning from 6th Sep 2025. RBI assured keeping banking system liquidity in a sufficiently positive zone to enable policy cut transmissions. RBI mentioned, however, that they will continue to conduct variable repo as well as reverse repo rate operations to keep the overnight rate closer to the policy rate. This should provide a floor to overnight rates even if the banking system liquidity gets into an excessively positive zone.

We feel the RBI policy framework will continue to remain supportive of growth, even as the threshold for further policy cuts is high. Current policy settings will allow banks to pass on the benefit of lower interest rates to the broad economy. We expect the ten year G-sec to trade in the 6.25% – 6.45% range. Short-term yields are likely to remain range-bound with one year CDs trading in the 6.20% – 6.40% range.