RBI likely to cut repo rate in August: SBI report
What's the story
The Reserve Bank of India (RBI) is expected to announce a 25 basis points (bps) cut in the repo rate during its upcoming Monetary Policy Committee (MPC) meeting from August 5-7. The prediction comes from a report by the State Bank of India (SBI). The proposed rate cut is likely to boost credit growth ahead of the festive season in FY26.
Economic impact
'Early Diwali' with increased credit growth
The SBI report suggests that an early rate cut in August could bring an "early Diwali" by enhancing credit growth. Historical data shows a clear trend of increased credit growth during the festive season whenever there is a repo rate cut before Diwali. The report states, "We expect RBI to continue frontloading with a 25 bps cut in August policy."
Past examples
Past examples of impact on credit growth
The SBI report cites an example from August 2017, when a 25 bps repo rate cut resulted in an incremental credit growth of ₹1,956 billion by Diwali's end. Nearly 30% of this was in personal loans. This highlights how a low-interest rate environment before Diwali can boost consumer spending and improve credit demand during one of India's biggest festivals.
Policy concerns
Risks of delaying rate cut
The SBI report warns that maintaining a restrictive policy stance with inflation well within RBI's target band for months could result in output losses. These are often difficult to reverse. It cautions that delaying a rate cut until inflation falls further or growth slows more visibly could inflict deeper, longer-lasting damage on the economy.