RBI's August 3-5 rate call: why a hold looks likely even as inflation tops 4%

The Reserve Bank’s Monetary Policy Committee (MPC) meets from 3-5 August 2026 for its next bi-monthly review, with the repo rate widely expected to stay put at 5.25% — even though retail inflation has just moved above the RBI’s 4% target.

Inflation is rising, but so is confidence rates will hold

Consumer Price Index (CPI) inflation climbed to 4.4% in June 2026, up from 3.9% in May, driven by food inflation (5.1%, versus 4.5% in May) and a jump in transport costs (4.3%, versus 1.8% in May) after petrol and diesel price increases. Rating agency ICRA puts its July inflation estimate even higher, at around 4.6%.

Despite that, ICRA expects the MPC to leave the repo rate unchanged at its August review. The reasoning: a sharp, recent decline in crude oil prices has eased cost pressures and “reduced the likelihood of a rate hike in August 2026,” even as risks — renewed tensions in West Asia, an uncertain monsoon, and the possibility of inflation becoming more broad-based — argue for caution rather than a cut.

Kharif sowing was running about 16% behind last year’s pace as of 10 July 2026, a factor the RBI will be watching closely since a weak monsoon can push food prices higher again.

If a hike does become necessary later, ICRA expects it to be back-ended — that is, later in FY27 rather than in August — and only if inflationary pressure proves persistent rather than a one-off spike.

What it means for you

• Existing floating-rate borrowers (home loans, EMIs linked to the repo-linked lending rate) should see no change in EMIs from this review if the hold materialises, since rate changes only pass through when the MPC actually moves.
• Fixed deposit rates are also likely to stay broadly where they are for now — banks tend to hold FD pricing steady between MPC meetings unless liquidity conditions shift sharply.
• Don’t assume a rate cut is imminent. With inflation now above the 4% mid-point of the RBI’s target band, the case for near-term easing has weakened; a hike later in the year is more plausible than a cut if food and fuel prices stay elevated.
• Borrowers with loans coming up for reset, or savers deciding between locking into a fixed deposit now versus waiting, should treat the current 5.25% repo rate as the base case for at least the next policy cycle.

Use the EMI calculator to check how your loan payout would change if rates move either way, or the FD calculator to compare returns before locking in a deposit. You can also compare current bank FD and loan rates across lenders.

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Source: Upstox — ICRA expects RBI to keep repo rate unchanged in August MPC decision.