RBI may cut repo rate by 25 Bps in August MPC meeting, says SBI report

New Delhi: The Reserve Bank of India (RBI) might announce a 25 basis points (bps) reduction in the repo rate during the upcoming Monetary Policy Committee (MPC) meeting, which is scheduled from 5 to 7 August. This information comes from a report by the State Bank of India (SBI). The report mentions that a single rate cut in August could help increase loan growth, creating a sense of an 'early Diwali' as the festive season for the financial year 2026 has already begun. According to the report, past data shows that rate cuts made before Diwali tend to lead to higher loan growth during the festive period. The report says, "We expect the RBI to continue with a 25 basis point cut in the August policy." It adds that the 25 basis point cut in the repo rate in August 2017 helped increase credit growth by Rs 1,956 billion by the end of Diwali. About 30 percent of this growth came from personal loans. Boost Credit Demand The report explains that Diwali is one of the largest festivals in India, so consumer spending usually goes up during this time. A low interest rate environment before Diwali helps boost credit demand. The report also states that whenever the festive season starts early and before the rate cut, loan growth has been strong. The report highlights that inflation has remained within the RBI's target range for several months now. If the RBI continues with a restrictive policy stance, it could result in output losses that are hard to fix. According to the report, factors like tariff-related uncertainties, GDP growth, Consumer Price Index (CPI) data for FY27, and even the festive season of FY26 could all affect the economy. EMIs May Reduced The biggest impact of the repo rate cut will be on those who are planning to take a home loan, car loan or personal loan. Existing borrowers may also get relief as their EMIs may come down. What If RBI Delayed The report also warned that if the RBI delays, it could be a serious policy error (Type II error). That is, if the RBI does not cut rates thinking that inflation is temporarily low, but in fact inflation remains low for a long time - then this decision can harm the economy.