Neutral stance, the reasons

The committee’s decision, taken unanimously, also preserves the policy stance as “neutral.”

In Central Bank speak, this means the RBI is keeping its options open; neither committing to further lowering rates nor moving to raise them – which would mean it's keeping an eye on the economic horizon, ready to react to storms or sunshine, but for now choosing not to budge.

Also read: RBI retains growth at 6.5 pc, but signs of demand slowdown evident

Much of the RBI’s confidence stems from recent economic trends. According to a report from SBI Capital Markets, the Central Bank foresees a fairly robust economic outlook, holding firm with a real GDP growth projection of 6.50 per cent for the financial year ending March 2026 (FY26), and a slightly cheerier 6.60 per cent for the first quarter of FY27.

This upbeat perspective is backed by a combination of above-normal monsoon rains, lower inflation and higher factory use.

Clouds on the horizon

Yet, it’s not all blue skies. The SBI Capital Markets report cautions that while the RBI exudes confidence, underlying numbers hint at hesitation in fresh investment.

Flow of new loans to businesses, not counting those for food, actually dipped by Rs 3.4 trillion in FY25, rising only modestly year-on-year. Which would mean companies aren’t borrowing as much to expand as they used to, perhaps holding off on big investments until the economic picture becomes clearer.

Real twist in story

Inflation is where most eyes are glued and where the real twists in the story lie. Inflation, or the general increase in prices over time, was sharply revised downward by the RBI.

Also read: Why Indian economy has moved from liquidity crunch to liquidity glut

The forecast for FY26 dropped dramatically to 3.10 per cent, down from the previous estimate of 3.70 per cent. As per SBI Capital Markets, this is the largest single policy cut in inflation forecasts in over four years, mostly thanks to a sharp fall in vegetable prices, a fact the RBI governor also emphasised in his morning address.

Core inflation

But there’s more to the story. Puneet Pal, head of Fixed Income at PGIM India Mutual Fund, noted that the current low inflation is a direct result of softening food prices. However, he highlighted that the RBI is watching “core inflation,” which strips out volatile items like food and fuel, more closely, emphasising its stability at around 4 per cent.

For readers, think of core inflation as a steadier yardstick since it isn’t swayed as much by sudden tomato or onion price shocks.

Pal added that RBI’s projections indicate core inflation won’t fade anytime soon, especially with the Central bank giving a Consumer Price Index (CPI) outlook of 4.90 per cent for the first quarter of FY27.

Karthick Jonagadla, managing director and CEO of Quantace Research and Capital Pvt Ltd, brought another crucial angle. He observed that while headline inflation, the raw, overall CPI, collapsed to just 2.1 per cent in June, it is expected to climb back to 4.2 per cent by the last quarter of FY26 as the impact of base effects (distortions caused by unusually high or low numbers in the comparison period) fades and food prices settle.

Jonagadla emphasised that “core CPI has hovered above 4 per cent for four months,” driven in part by record-high gold prices, showcasing strong demand in sectors like cars, household appliances, and travel.

Bond markets, investments

What does a static repo rate mean for other markets?

Also read: Indian economy stable amid geopolitical tensions, tariff policy uncertainties: RBI Bulletin

The SBI Capital Markets report points out that the 10-year government bond yields, the return investors earn on long-term government loans, nudged up by about 5 basis points (bps, or one-hundredth of a percentage point) immediately following the policy decision.

For the non-market reader, this uptick reflects investors’ view that the RBI is being careful, not eager to deliver more aggressive rate cuts right away.

Jonagadla from Quantace noted that this “pause” keeps the liquidity impulse alive (a reference to the money already flowing through the financial system) after earlier rate cuts totaling 100bps this year. That means banks, housing finance companies, and companies looking to invest in new capacity are still benefiting from cheaper credit.

But here too, expectations are being tempered: investors shouldn’t expect a flood of even lower rates in the short term, especially with the RBI signaling caution by maintaining its neutral stance.

Risks and uncertainties

Not everything is rosy, of course. As per SBI Capital Markets, external factors like unexpected heavy rains could push veggie prices back up, and rising sanctions or tariffs, especially from the US, pose a potential threat to India’s exports, particularly in industries like specialty chemicals and textiles.

Jonagadla agreed, warning that Washington’s recent 25 percent tariff could shave nearly half a percentage point off GDP growth and inject uncertainty into investment plans for export-oriented sectors.

Meanwhile, Puneet Pal (PGIM India) voiced a slightly conservative outlook compared to the RBI, suggesting actual GDP growth might fall short of official projections. He expects a single additional rate cut of 25bps in October 2025, offering a sliver of hope to borrowers for slightly cheaper loans later in the year.

Where to look next?

The SBI report highlighted something often overlooked: the ripple effects of monetary policy are working more quickly than before.

Every 100bps rate cut by the RBI has translated into almost 80bps reductions in bank lending and deposit rates. So the benefits for borrowers have been tangible, but savers have seen slightly lower interest on new deposits.

It also noted that banks have been swimming in liquidity, meaning there’s plenty of cash available for lending. This is further supported by the Central bank’s phased approach to lowering the Cash Reserve Ratio (CRR—the slice of customer deposits that banks must park with RBI), which will make even more funds available for lending in coming months.

For investors, Quantace's Jonagadla advises to “stay overweight” in cyclical lenders, capital goods makers, and building material suppliers, where credit growth, strong order books, and attractive valuations intersect. He recommends shifting away from high-price-to-earnings yield substitutes, as the era of “easy money” has likely peaked for now. Within consumer markets, only those companies with genuine pricing power, the ability to raise prices without losing customers, are best placed to defend profit margins if inflation ticks back up.