With U.S. tariffs looming and inflation near six-year lows, all eyes are on the Reserve Bank of India as it prepares to deliver a high-stakes policy decision Wednesday that could determine the pace of India’s economic recovery heading into the festive season.

The Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, kicked off its three-day meeting Monday amid mounting calls for a final 25 basis point repo rate cut. While most economists expect the central bank to hold the rate at 5.5%, the sharp drop in inflation and new trade headwinds have sparked debate.

Retail inflation cooled to just 2.1% in June—well below the RBI’s 4% target—strengthening the case for a cut. Yet the surprise U.S. move to slap 25% tariffs on Indian goods from August 7 has complicated the outlook.

“Recent inflation or tariff announcements are unlikely to shift the RBI’s stance,” said Madan Sabnavis of Bank of Baroda, who expects a status quo. However, ICRA’s Aditi Nayar warned that the U.S. action poses “a downside risk to GDP growth” and could tip the RBI toward a final rate cut.

One expert noted that a modest cut could cushion MSMEs ahead of the crucial festive season. “A 25-basis-point rate cut could help MSMEs absorb external shocks, maintain credit access, and power job-creation,” the expert said.

Market liquidity also remains in focus. With over Rs 3.3 lakh crore in surplus and more expected, traders are watching the RBI’s guidance on absorption. Bondbazaar’s Suresh Darak said the central bank may now pause to assess the impact of previous cuts on growth and inflation.

With consumption expected to pick up between August and November, the RBI’s tone—and not just its rate move—will signal whether policy support has peaked, or more easing could follow.