25 bps rate cut will be best option for RBI: SBI study
RBI’s MPC scheduled to meet on Sept 29 for a three-day deliberation
image for illustrative purpose
New Delhi: A SBI study released on Monday stated that there is merit and rationale for the Reserve Bank to reduce the key benchmark lending rate by 25 basis points in the forthcoming monetary policy, as retail inflation is expected to remain benign even in the next financial year.
The Reserve Bank of India (RBI) has already reduced the repo rate by 100 basis points since February, amidst declining consumer price index (CPI) based inflation. After reducing the repo rate three times in a row, the RBI hit a pause button in August.
The Reserve Bank Governor-headed Monetary Policy Committee (MPC), which decides on the interest rate, is scheduled to meet on September 29 for a three-day deliberation. The decision will be announced on October 1.
“There is merit and rationale in going for a September rate cut...This will but require calibrated communication by the RBI as post June, the bar for rate cut is indeed higher,” said ‘Prelude to MPC Meeting’, the research report from the State Bank of India’s Economic Research Department.
It further said central bank communication is a crucial toolkit for monetary policy, and post-June policy, such communication has played a major role in yields hardening.
“But there is no point in committing a Type 2 error again (no rate cut with neutral stance) by not cutting rates in September as inflation will continue to remain benign even in FY27, and without a GST cut, it is tracking below 2 per cent in September and October,” it said.
The report said the CPI for fiscal 2026-27 numbers are now tracking around 4 per cent or less, with GST rationalisation, October CPI could be closer to 1.1 per cent, the lowest since 2004.
