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Kolkata: The retail inflation figures in the first quarter of the current financial year has been a delight for policymakers. Riding dipping food inflation, the retail inflation figures has been on a remarkably declining path -- 3.16% in April, 2.84% in May and 2.10% in June. The question on many lips is, if this trend of low inflation level persists, will there be another round of Repo rate cut when the rate cutting committee MPC (monetary policy committee) meets in August? The next MPC (Monetary Policy Committee) meeting is on August 4-6.
Significantly, it is not longer in the realms of mere speculation. In an interview Reserve Bank of India governor Sanjay Malhotra mentioned a scenario in these lines. “The monetary policy committee will always factor in the evolving situation, the outlook, and then decide what the economy really needs... Certainly, the policy rates can be cut,” he said, should the rate of inflation dip below the RBI's forecast or in the situation of growth remaining weak.
RBI is constantly weighing both growth and inflation rates to take a view on whether to bring out its rate-cutting scissors. “One cannot say inflation is more important than growth; it’s always the mix of both factors... Both are equally important, and I would not say we are giving more weight to either number at this point,” Malhotra remarked.
Incidentally, RBI and several other agencies maintain that the country could record a GDP growth of 6.5% in FY26 even factoring in the turbulence in external sector owing to Trump's tariffs and geopolitical risks which never seem to die away decisively.
In this context, one needs to recall what projections the RBI boss make on June 6, after he made the jumbo rate cut of 50 basis points. Malhotra mentioned that RBI's inflation projections for FY26 are 3.6% (Q1), 3.9% (Q2), 3.8% (Q3) and 4.4% (Q%). RBI follows a target of 4% in retail inflation. The growth rate projections for the four quarters were 6.5% in Q1, 6.7% in Q2, 6.6% in Q3 and 6.6% in Q4.
It remains to be seen what the quarterly GDP growth rates are. If they are below the target of 6.5%, it won't be difficult for the MPC to cut the Repo Rate by 25 basis points. The retail inflation figures have paved the way towards that direction. Significantly, wholesale price index (WPI) has turned negative in June 2025.
RBI has aggressively cut the benchmark Repo Rate from 6.5% in early February to 5.5% on June 6. The broad objective of this step has been to stimulate consumption, which has faltered over the past several months leading to depressed capex from the private sector. With interest rates on loans coming down across the board following the RBI rate cuts, RBI is watching consumption levels closely now.
If RBI cuts the Repo Rate again, interest rates on loans can go down again. However, it is not an unmixed blessing. While cheaper loans and lower EMIs can boost consumption, they also bring misfortune to a large number of people who depend on bank and NBFC deposits to meet their regular expenditure.
