Another RBI rate cut likely if inflation remains in check: SBI research
September 28, 2025
RBI Governor Sanjay Malhotra-headed MPC is scheduled to begin a three-day meeting on policy rate on Monday.RBI monetary policy, India interest rates, Repo rate cut, Inflation in India, MPC meeting October, SBI research report, GST rate rationalisation, Indian economy forecast, US tariffs impact on India, CRR cut impact, Expert views on repo rate, RBI policy stance, Future of Indian monetary policy, Impact of US Fed rate cut on RBI, How will rationalized GST rates affect India's inflation rate, interest rate, interest rate cut, RBI interest rate
The Reserve Bank of India (RBI) is likely to cut the benchmark interest rate by 25 basis points in its upcoming Monetary Policy Meeting (MPC), driven by expectations of sustained low inflation, according to a research report by the State Bank of India (SBI). However, some other experts opined that the central bank will keep the repo rates unchanged when it announces its policy on October 1.
RBI Governor Sanjay Malhotra-headed MPC is scheduled to begin a three-day meeting on policy rate on Monday in the backdrop of the ongoing geopolitical tensions and the US imposing 50 per cent tariffs on Indian shipments.
The RBI reduced the key short-term lending rate (repo) by 100 basis points in three tranches beginning in February, amidst declining consumer price index (CPI) based inflation. However, the central bank opted for a status quo in the August bi-monthly monetary policy, taking a wait-and-watch approach to assess the impact of US tariffs and other geopolitical developments on the domestic economy.
The SBI study stated that there is merit and rationale for the RBI to reduce the key benchmark lending rate by 25 basis points in the forthcoming monetary policy.
On expectations from the MPC, Madan Sabnavis, Chief Economist at Bank of Baroda, said: "While we do believe that 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."
He further said that, as inflation is anyway well below the target of 4 per cent both before and after GST 2.0, this cannot be a primary consideration. Also, growth is expected to steady and be upwards of 6.5 per cent for the year, and hence there is no imminent threat to this number even after taking into account the tariff effect. "Under these conditions, we expect a status quo. A change of stance could probably be considered to assuage sentiment and bond yields. 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," Sabnavis said.
Aditi Nayar, Chief Economist, ICRA, said the GST rationalisation could dampen the headline CPI prints by 25-50 bps during Q3 FY2026 - Q2 FY2027 relative to ICRA's pre-GST rationalisation estimates, taking the average for FY2026 to about 2.6 per cent. While October-November 2025 may mark a fresh low for the CPI inflation, the trajectory subsequently remains upward sloping.
"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," she said.
Effective September 22, Goods and Services Tax (GST) has become a two-tier structure. The earlier rates of 5, 12, 18, and 28 per cent have been clubbed into two rates of 5 per cent and 18 per cent, resulting in a reduced price of 99 per cent of daily use items.
Dharmakirti Joshi, Chief Economist, Crisil Limited, said: "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 rationalisation of GST rates will also likely contribute to reducing inflation further, he said. "Moreover, the recent decision by the US Federal Reserve to lower its funds rate by 25 basis points, along with an anticipated additional 50 basis points of cuts this year, provides the RBI's Monetary Policy Committee with some flexibility to make adjustments," he added.
Mandar Pitale, Head of Financial Markets, SBM Bank (India) Ltd, said MPC is expected to maintain "status quo" on policy rate in the forthcoming meeting, waiting for the full impact of CRR cut to unfold and also for any further proactive fiscal measures from the government. "In the near term, the baseline view thus remains that of prolonged pause with a small probability of residual rate cut in December MPC meeting depending upon the forward-looking growth inflation dynamics prevailing at that point," Pitale said.
According to a study published in the RBI's latest Bulletin, the pass-through of the cumulative 100 bps reduction in the repo rate during February to August 2025 to lending and deposit rates has been robust.
RBI Governor Sanjay Malhotra-headed MPC is scheduled to begin a three-day meeting on policy rate on Monday in the backdrop of the ongoing geopolitical tensions and the US imposing 50 per cent tariffs on Indian shipments.
The RBI reduced the key short-term lending rate (repo) by 100 basis points in three tranches beginning in February, amidst declining consumer price index (CPI) based inflation. However, the central bank opted for a status quo in the August bi-monthly monetary policy, taking a wait-and-watch approach to assess the impact of US tariffs and other geopolitical developments on the domestic economy.
The SBI study stated that there is merit and rationale for the RBI to reduce the key benchmark lending rate by 25 basis points in the forthcoming monetary policy.
On expectations from the MPC, Madan Sabnavis, Chief Economist at Bank of Baroda, said: "While we do believe that 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."
He further said that, as inflation is anyway well below the target of 4 per cent both before and after GST 2.0, this cannot be a primary consideration. Also, growth is expected to steady and be upwards of 6.5 per cent for the year, and hence there is no imminent threat to this number even after taking into account the tariff effect. "Under these conditions, we expect a status quo. A change of stance could probably be considered to assuage sentiment and bond yields. 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," Sabnavis said.
Aditi Nayar, Chief Economist, ICRA, said the GST rationalisation could dampen the headline CPI prints by 25-50 bps during Q3 FY2026 - Q2 FY2027 relative to ICRA's pre-GST rationalisation estimates, taking the average for FY2026 to about 2.6 per cent. While October-November 2025 may mark a fresh low for the CPI inflation, the trajectory subsequently remains upward sloping.
"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," she said.
Effective September 22, Goods and Services Tax (GST) has become a two-tier structure. The earlier rates of 5, 12, 18, and 28 per cent have been clubbed into two rates of 5 per cent and 18 per cent, resulting in a reduced price of 99 per cent of daily use items.
Dharmakirti Joshi, Chief Economist, Crisil Limited, said: "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 rationalisation of GST rates will also likely contribute to reducing inflation further, he said. "Moreover, the recent decision by the US Federal Reserve to lower its funds rate by 25 basis points, along with an anticipated additional 50 basis points of cuts this year, provides the RBI's Monetary Policy Committee with some flexibility to make adjustments," he added.
Mandar Pitale, Head of Financial Markets, SBM Bank (India) Ltd, said MPC is expected to maintain "status quo" on policy rate in the forthcoming meeting, waiting for the full impact of CRR cut to unfold and also for any further proactive fiscal measures from the government. "In the near term, the baseline view thus remains that of prolonged pause with a small probability of residual rate cut in December MPC meeting depending upon the forward-looking growth inflation dynamics prevailing at that point," Pitale said.
According to a study published in the RBI's latest Bulletin, the pass-through of the cumulative 100 bps reduction in the repo rate during February to August 2025 to lending and deposit rates has been robust.