SBI Research makes a case for 25 bps RBI repo rate cut in monetary policy meeting this week
A quarter-point RBI repo rate cut is the “best possible option” in the upcoming monetary policy meeting as India's inflation rate is benign, SBI Research says.
A quarter-point repo rate cut is the “best possible option” for Reserve Bank of India in its upcoming monetary policy, SBI Research has said, even as other policy watchers saw another status quo.
There is “merit and rationale” for a 25 basis-point RBI rate cut as India's retail inflation rate is expected to remain benign even in the next financial year, SBI Research said, as GST rationalisation is likely to keep the prices suppressed. Additionally, the impact of 50% US tariffs on India has already started showing in economic activity.
One basis point is one-hundredth of a percentage point.
Bank of Baroda seemed to echo SBI Research's view.
“While we do believe there is limited scope for any change in the repo rate in this policy, there is a market view that given the current environment, a rate cut would be warranted,” Madan Sabnavis, chief economist at Bank of Baroda, told the Press Trust of India.
But while India's inflation rate has stayed well below the RBI target of 4% before and after GST 2.0, this cannot be a primary reason for a rate cut. India's GDP growth is also likely to steady at above 6.5%—which is the RBI's estimate—even after taking into account the tariff impact.
“Under these conditions, we expect a status quo. A change of stance could probably be considered to assuage sentiment and bond yields,” Sabnavis said. “If at all, at a later point in time, there is a package for exporters against the backdrop of tariffs, a rate cut could be considered.”
RBI Monetary Policy
India's Monetary Policy Committee, led by RBI Governor Sanjay Malhotra, is scheduled to begin a three-day meeting on Monday, against the backdrop of geopolitical tensions and Trump's tariff war. The repo rate decision will be announced on 1 October 2025.
Since the beginning of this year, the RBI has reduced the repo rate by 100 basis points in three tranches amid easing inflation in the Indian economy.
The central bank opted for a status quo in the August monetary policy, taking a wait-and-watch approach to assess the impact of US tariffs on India.
Economists On RBI Repo Rate
Aditi Nayar, Chief Economist, ICRA: GST rationalisation is unambiguously set to moderate inflation. However, this is the outcome of a policy change and will likely be accompanied by stronger demand. This suggests a status quo for the repo rate in the October 2025 policy review, in what appears to be a close call.
Dharmakirti Joshi, Chief Economist, Crisil: We expect that a repo rate cut could come as soon as October due to lower-than-expected inflation. Core inflation, which indicates excess demand pressure, remains low by historical standards despite the significant impact of rising gold prices.
The recent decision by the US Federal Reserve to lower its interest rate by 25 bps, along with additional 50 bps of interest rate cuts likely this year, provides RBI's Monetary Policy Committee with some flexibility to make adjustments.
