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RBI holds rates; Inflation outlook improves, growth momentum intact

ICICIdirect Research 08 Aug 2025 DISCLAIMER

Reserve Bank of India (RBI) kept the repo rate unchanged at 5.5%, in-line with broad expectation, maintaining a neutral policy stance. RBI Governor reaffirmed the central bank’s commitment to balancing growth and price stability, stating that domestic growth remains resilient and broadly in line with the RBI’s expectations.
While inflation projection for FY26 is reduced to 3.1% from 3.7% earlier, with Q2 and Q3 revised downwards to 2.1% and 3.1% respectively. Inflation projection for Q4 is maintained at 4.4%, while Q1FY27 is estimated at 4.9%. This moderation is underpinned by large favorable base effects, robust kharif sowing amid a steady southwest monsoon, improved reservoir levels, and comfortable buffer stocks of food-grains. GDP growth forecast remains unchanged at 6.5% for FY26.
The benign inflation outlook, coupled with stable growth commentary leaves limited scope for further rate cut, with growth trajectory being monitored to determine future course. Overall, the tone remained balanced signaling that the monetary policy cycle is in a pause mode, barring any external shocks.
From banks perspective, post 100 bps rapid cut in rates, stance to keep repo rates unchanged acts as a breather. With systemic liquidity expected to remain adequate (aided by 100 bps CRR cut which flows-in from Sept onwards), transmission of rate cuts is expected to continue with margin pressure in Q2FY26 followed by a revival in 2HFY26. Credit growth is expected to remain at 11-12% with tailwind from rural segment amid favorable monsoon conditions, while asset quality trend remains closely monitored.

 

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