RBI: Will RBI give a gift before Rakshabandhan, will the interest rate decrease again?

The Reserve Bank of India has cut the repo rate by up to 1 percent four times since February 2025, which has directly benefited the common borrowers, because the banks have given their direct benefit to their customers by making the loan cheaper. Now, once again, the monitoring policy meeting is going to be held in August, for which it is expected that the RBI can once again cut the repo rate.

How much can the repo rate be cut?

According to the report of the State Bank of India (SBI), the Reserve Bank of India (RBI) can cut the repo rate by 25 basis points (bps) in its upcoming Monetary Policy Committee (MPC) meeting. This meeting is to be held between 4 and 6 August. The report says that if the RBI once again cuts the repo rate in August, it will be like an early Diwali, as it will increase the demand for loans, especially when the festival season is about to start in the financial year 2025-26. The report also said that past data clearly show that a cut in repo rate before Diwali leads to higher loan growth during the festival. The report said, we expect the RBI to do the same with a 25-bps cut in the August policy.

This much loan can be taken during the festive season.

Citing an example, the report said that when the repo rate was cut by 25 bps in August 2017, a total of Rs 1,956 billion additional loans had increased till Diwali, of which about 30% were personal loans. The report said that Diwali is India's biggest festival, in which consumer spending is high, and cheap interest rates before Diwali help increase the demand for loans.

The report also added that data shows that whenever festivals come early and a rate cut happens before them, loan growth increases rapidly. The report also said that the inflation rate has been within the RBI's target for the last several months. In such a situation, if the RBI continues with its tight monetary policy, it may lead to a loss in production, which will be difficult to compensate for.

According to the report, the effect of monetary policy is delayed, and if the RBI delays the rate cut further, then waiting for inflation to reduce further or growth to slow down further can cause great harm to the economy. The report said that if the RBI continues to wait, its benefit will be less, while the price of not taking any step may have to be paid in the form of loss in production and a weak investment environment.

Inflation to be controlled, GDP to grow
The central bank's objective in cutting the repo rate is to both control inflation and balance growth. Citing the standard quadratic loss function, the report warned that if the RBI does not cut the rate now, assuming that the reduction in inflation is temporary, then it can be a big mistake. In reality, inflation may remain low, and the decline in production may increase. The report said that tariff-related uncertainties, GDP growth, CPI data for FY27, and the festival season of FY26 have all already been factored into the schedule.

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