RBI needs to remain watchful amid tariff uncertainties, says Governor Malhotra; policymakers call for caution

The Reserve Bank of India (RBI) on Wednesday, August 20, said that it decided to keep the repo rate unchanged in its August Monetary Policy Committee (MPC) meeting due to the present economic conditions with uncertainty on the external front. 

The central bank is assessing the impact of US President Donald Trump’s sweeping tariffs on India before announcing any more cuts in the key interest rate (repo), as per the minutes of the RBI’s August meeting. 

Additionally, the transmission of the rate cuts announced earlier this year is still underway, so the RBI opted for the ‘wait and watch’ strategy to see how trade policy uncertainties play out before taking further policy actions in the next MPC meeting in October. 

The apex bank has already cut the repo rate thrice this year, frontloading a 100 basis points (bps) reduction since February 2025. The repo rate now stands at 5.5%, and the monetary policy stance remains neutral. The RBI also maintained its GDP projection for FY26 at 6.5%. 

“(In) the current state of uncertainty on the external front, monetary policy needs to remain watchful,” RBI Governor Sanjay Malhotra said, adding that the GDP growth forecast of 6.5% reflected resilience but remains below the country’s potential. 

RBI MPC Minutes: Key takeaways

External member Nagesh Kumar said that the MPC is expected to wait and watch for the transmission of existing actions, and see how tariff uncertainties take shape in the coming months before considering policy actions in the next MPC meeting.

Ram Singh, another external member, noted some positive signs of growth, including buoyant PMI readings, stronger private fund flows, a healthy monsoon, rising capacity utilisation and festive demand. 

However, he added that stress signs could limit GDP growth. Singh also said that the average core inflation is likely to remain above the target range during the coming quarters, calling for caution.

While the RBI maintained its 6.5% growth projection, there was consensus among MPC members that the current global uncertainty requires the apex bank to remain cautious about future policy actions.

External member Saugata Bhattacharya said that if tariff concerns persist, there could be an adverse impact on India’s growth in FY26, and even in the future. 

Apart from the repo rate, the RBI maintained the standing deposit facility (SDF) at 5.25% and marginal standing facility (MSF) and Bank Rate at 5.75%. 

CPI headline inflation slipped to a 77-month low of 2.1%, and food inflation dropped to a negative for the first time since 2019. Food inflation currently stands at -0.2% on the back of strong monsoon-driven agricultural supply and buffer stocks. 

Inflation is expected to rebound later and rise above 4% in Q1, and is forecasted to touch 4.9% in Q1 FY27 due to the base effect and demand recovery. Core inflation, however, remains near 4.4%.