Mumbai, July 18, 2025:
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) may go for another 25 basis point (bps) rate cut in the upcoming August 2025 policy review, potentially bringing the key repo rate down to 5.25%, according to an economic outlook report released by ICICI Bank.

The report indicates that current macroeconomic conditions—particularly the divergence in urban and rural demand trends, inflation stability, and mixed export performance—create an environment conducive for further monetary easing.

Urban Weakness, Rural Strength Driving Mixed Demand Trends

The bank highlighted that urban demand remains relatively weak, driven by low discretionary spending, moderation in housing and auto sales, and a cautious sentiment among middle-income consumers in Tier-I cities.

In contrast, rural demand continues to show strength, supported by ongoing welfare spending, stable agricultural income, and resilience in rural consumption sectors such as FMCG and two-wheelers.

"While rural consumption remains strong, the weakness in urban indicators, particularly in retail and services, is creating a drag on overall demand recovery," the ICICI Bank report noted.

Exports to the U.S. Improve, But Global Demand Still Fragile

On the external front, the report noted some improvement in India’s exports to the United States, thanks to a recovery in key sectors such as electronics, pharma, and textiles. However, exports to Europe, Asia, and Africa remain weak, affected by global uncertainties and geopolitical tensions.

"The pick-up in exports to the U.S. is encouraging, but overall external trade performance remains muted, limiting the upside to industrial recovery," ICICI Bank analysts said.

Inflation Within Comfort Zone Opens Policy Space

Inflation continues to stay within the RBI’s tolerance band of 2–6%, and core inflation has softened steadily over the past three quarters, creating a window for further rate cuts. The Consumer Price Index (CPI) inflation in June stood at 4.9%, and wholesale inflation has shown signs of contraction.

Given these developments, ICICI Bank expects the RBI to opt for proactive policy support rather than wait for inflation to fall further.

“Inflation is now predictable, and global commodity prices are not posing fresh risks. The MPC can afford to shift focus toward boosting domestic growth,” the report added.

Repo Rate Expected to Fall to 5.25% in August 2025

The repo rate currently stands at 5.50% after the last cut in June 2025. ICICI Bank now anticipates a further 25 bps cut in the upcoming August MPC meeting, which would lower the repo rate to 5.25%, the lowest since pre-COVID levels in 2019.

This would mark the second consecutive rate cut in FY26, signaling the RBI’s renewed focus on reviving private investment and credit growth in a low-demand environment.

Policy Stance May Stay ‘Accommodative’

While a rate cut appears likely, ICICI Bank expects the RBI to maintain its 'accommodative' policy stance, keeping room open for further easing if growth fails to accelerate or inflation drops below 4% for multiple months.

“The current economic conditions call for flexibility. An accommodative stance allows the RBI to remain responsive while anchoring inflation expectations,” the report stated.

Sectoral Impact: Positive for Loans, Real Estate, and Consumption

If the rate cut materialises, several sectors could benefit:

• Banks and NBFCs may see lower cost of funds, potentially leading to reduced lending rates.

• Real estate and housing markets could get a push, especially in the affordable and mid-segment categories.

• Consumer durables and auto sectors may experience improved sentiment, especially in festive months.

However, fixed deposit investors may see further declines in interest rates, prompting a shift toward equities or hybrid instruments.

Conclusion: RBI Likely to Act, But Eyes Will Be on Inflation and Fed

With ICICI Bank’s projections aligning with broader market expectations, all eyes are now on the August MPC meeting. The RBI’s decision will likely consider not only domestic inflation and demand conditions but also the U.S. Federal Reserve’s rate outlook, which could affect capital flows.

In any case, the policy tone is expected to remain growth-oriented, aiming to provide just enough stimulus without risking price stability.

Stay tuned as we bring you live updates during the RBI’s policy announcement scheduled for early August 2025.

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