According to Nomura economists Sonal Varma, Aurodeep Nandi, the higher tariffs have increased the likelihood of monetary policy easing.
“With inflation likely to remain below the 4% target (June printed in at a 77-month low of 2.1% and July is set for an nder-2% reading), despite any currency weakness, we continue to expect 25 bps cuts each in October and December to a terminal rate of 5%, with risks skewed towards further cuts. We believe the probability of a cut in August has risen to 35% (from 10%) pre-tariffs,” they said.
SBI chief economic advisor Soumyakanti Ghosh also sees another repo cut to the tune of 25 bps on Wednesday.
“We expect RBI to continue frontloading with a 25 bps cut in the August policy, saying we are living in a frontloaded world with tariff uncertainty frontloaded, better GDP growth frontloaded, and inflation numbers to continue to be frontloaded with even a sub-4% number with new CPI series. Even festive season is frontloaded. And no point in backloading/committing a type II error for now.
Elara Securities also in a noted said, with risks to growth elevated and inflation risks remaining benign, we expect growth-supportive stance of the RBI to stay. The July inflation will likely see a print closer to 2%, bringing it closer to lower tolerance band of the RBI. As risks to growth compound after the higher tariffs, the likelihood of a 25 bps repo cut in August has increased.”