Reserve Bank of India (RBI) has left the door open for another interest rate cut as the latest data shows retail inflation fall to a more than six-year low of 2.1% in June.

RBI Governor Sanjay Malhotra has indicated the possibility of a further cut in the repo rate if inflation continues to remain benign or growth comes under pressure.

In the June monetary policy, the RBI’s six-member monetary policy committee (MPC) reduced the repo rate by 50 basis points (bps) to 5.50%. This was the third consecutive rate cut, bringing it down by 100 basis points from 6.50%.

The policy rates can certainly be cut if inflation is lower than the RBI’s forecast or growth remains weak, Malhotra said in an interview with CNBC-TV18.

After June’s consumer price index-based inflation data was released yesterday, many economists expect retail inflation to fall below the RBI’s forecast of 3.7% for FY26. The RBI Governor also said that there is an expectation that inflation for the current year could undershoot its 3.7% forecast. “That’s certainly on the cards. And if that happens, the monetary policy will have a look at it and take a call,” he said.

With the inflationary trend remaining benign, economists now do not rule out a repo cut by 25 bps in August itself. The sentiment earlier was that the next rate cut would likely be in October, following a pause in the August policy. This view was triggered by the fact that the RBI went for a larger-than-expected 50-bps frontloading rate-cut. 

"After the CPI inflation eased for the eighth consecutive month to a softer-than-expected 2.1% in June and touched the lowest level since January 2019, we are not ruling out the possibility of a final 25 bps rate cut in the August meeting to carry forward the front-loading seen in June,” said Aditi Nayar, chief economist at ICRA.

If the RBI goes for a rate-cut pause in August, monetary policy easing could happen in October or December. Nomura expects cuts of 25 bps each in the October and December policy meetings to a terminal repo rate of 5%.

Malhotra reiterated that the RBI would continue to be data-dependent going forward. The central bank will look at both moderation in inflation or lower growth before taking a call on lowering the key policy rate. “Both are equally important and I would not say that we would give more emphasis, as of now, to either numbers,” he said.

The RBI’s rate-setting panel MPC is scheduled to meet early next month.