The BRICS TimesSBI Research believes a quarter-point RBI repo rate cut is the “best possible option” in the upcoming monetary policy review, as India’s inflation outlook remains soft.
SBI Research pushes for a repo rate reduction
SBI Research has argued that a 25 basis point reduction in the Reserve Bank of India’s repo rate would be the “best possible option” at the upcoming monetary policy review. The research unit stressed that India’s retail inflation rate is expected to remain subdued in the next fiscal year, supported by GST rationalisation, which is likely to keep prices low. It also highlighted that the economic impact of the 50% US tariffs on Indian goods has already started to become visible.
A basis point represents one-hundredth of a percentage point.
Bank of Baroda voices similar perspective
Bank of Baroda economists also resonated with this assessment. “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,” said Madan Sabnavis, Chief Economist at Bank of Baroda, in a statement to Press Trust of India.
Although India’s inflation rate has remained well below the RBI’s 4% target both before and after GST 2.0, experts warn this alone cannot justify a cut. At the same time, India’s GDP growth is projected to remain above 6.5%, matching RBI’s expectations even after factoring in the tariff shock.
“Under these conditions, we expect a status quo. A change of stance could probably be considered to assuage sentiment and bond yields,” Sabnavis explained. “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 meet
The Reserve Bank of India’s Monetary Policy Committee, headed by Governor Sanjay Malhotra, will begin a three-day meeting on Monday. The repo rate decision is scheduled for October 1, 2025, amid continuing global geopolitical tensions and the US tariff battle initiated by President Trump.
The central bank has reduced the repo rate by 100 basis points in three steps since the beginning of this year, benefiting from easing inflationary pressures. However, the RBI opted for a status quo in the August policy meeting to assess the full impact of US tariffs on India before proceeding with further decisions.
Economists weigh in on repo rate prospects
Aditi Nayar, Chief Economist at ICRA, observed that “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 at Crisil, offered a different angle. He noted, “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 US Federal Reserve recently reduced its interest rate by 25 basis points and signalled another 50 basis points of cuts later this year. This move has given RBI’s Monetary Policy Committee additional room to consider rate adjustments in response to India’s evolving economic situation.
