RBI likely to reduce repo rate by 25 points:SBI Research

The Reserve Bank of India (RBI) is likely to lower the policy repo rate by 25 basis points (0.25 per cent) in its upcoming monetary policy review scheduled for October 1, according to SBI Research.In a special report ‘Prelude to MPC Meeting’, SBI Research said a 25 basis points cut is the “best possible option for the RBI.” The Monetary Policy Committee (MPC) of the RBI is set to begin its three-day deliberations on September 29, with the decision to be announced on October 1.“There is merit and rationale in going for a September rate cut. This will, however, require calibrated communication by the RBI as post-June the bar for a rate cut is indeed higher,” the report said.
According to information,since February, the RBI has reduced key policy rates by a cumulative 100 basis points,25 basis points each in February and April, followed by a 50-basis-point cut in June. After these three consecutive cuts, the central bank paused in August.SBI Research highlighted that a rate cut is warranted as inflation is expected to remain benign even in 2026-27. Headline retail inflation based on the Consumer Price Index (CPI) stood at 2.07 per cent in August, slightly higher than an eight-year low of 1.61 per cent in July.
“We believe that the bottom of CPI inflation may not yet have been reached, and it may further decline by 65-75 basis points due to significant GST rationalisation,” the report noted. SBI Research cited 2019 as a precedent, when GST rate rationalisation from 28 per cent to 18 per cent for common goods led to nearly 35 basis points decline in overall inflation within a few months.“Additionally, with the new CPI series, we expect a further moderation of 20-30 basis points in CPI. Combined, these factors indicate that CPI inflation will remain around the lower end of the inflation target (4±2 per cent) for the entire FY26 and FY27,” SBI Research added.

(Business Correspondent)