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“Inflation has so far stayed within the RBI’s target band, but is expected to inch up later this year. The RBI has also indicated that it wants to see the full transmission of earlier rate cuts before considering more,” the note said.
The Analyst added that the RBI continues to highlight that fiscal policy has taken a bigger role in reviving demand, while monetary policy has only limited scope to drive growth.
Indian rupee weakness weighs on RBI
According to Nuvama, the RBI will also keep an eye on external risks. The Indian rupee has been under pressure amid capital outflows and global uncertainties. In this backdrop, the RBI may prioritise currency stability over rate cuts in the near term.
GST cuts offer relief but not enough
Despite near-term caution, Nuvama noted that more rate cuts are warranted. Demand conditions are likely to remain weak through FY26, with Trump tariffs expected to slow global growth and hurt India’s exports and jobs.
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At home, government spending may cool due to lower tax collections, while household income growth remains soft and credit growth has slowed. “Surely, GST cuts may offer partial relief by supporting consumption, but broader demand will likely remain sluggishIn this backdrop, a co-ordinated fiscal and monetary push becomes essential, underscoring the case for timely RBI easing to revive consumption,” Nuvama said.
RBI likely to hold Neutral stance for now: Nuvama
At its last policy, the RBI left rates unchanged and signalled limited space for further easing. Nuvama expects the RBI to hold rates steady this time as well, keeping a neutral stance while monitoring the demand impact of GST cuts.
“With the Fed moving towards easing and India’s real rates still elevated, we expect the RBI to eventually start monetary easing, though the timing will be crucial,” Nuvama said. “Overall, the RBI is likely to commence measured easing later this year.”
Repo rate cut unlikely; CPI may dip before rising again, says Nuvama
ICRA also expects the RBI to keep the repo rate unchanged. “The positive impact of the GST reforms on demand, suggest a status quo for the repo rate in the October 2025 policy review,” Nuvama noted.
The ratings agency said that GST rationalisation could dampen headline CPI inflation by 25-50 basis points between Q3 FY2026 and Q2 FY2027 compared to its earlier estimates. With this, average CPI inflation for FY2026 is likely to be around 2.6%, lower than the previous projection of 3.0%. While CPI prints in October-November 2025 may touch a fresh low, the trajectory is expected to turn upward thereafter.