Sept Rate Cut Is Best Option For RBI, Says SBI Research
Inflation will continue to remain benign even in fiscal 2027 and without a GST cut, it is edging below 2 per cent in September and October: Report
MUMBAI: With retail inflation expected to remain benign even in the next financial year, there is merit and rationale for the Reserve Bank of India (RBI) to reduce the key benchmark lending rate by 25 basis points in its forthcoming monetary policy, said SBI Research report titled Prelude to MPC Meeting released on Monday. This would be the best possible option for RBI which will also project it as a forward-looking central bank, it said.
Inflation will continue to remain benign even in fiscal 2027 and without a GST cut, it is edging below 2 per cent in September and October. The Consumer Price Inflation (CPI) numbers for F27 are now
tracking around 4 per cent or less. With GST rationalization, the October CPI could be closer to 1.1 per cent, lowest since 2004, it said.
Across the world, benchmark yields have somewhat hardened and India is no exception since the June policy. Post June 2025 rate cut, GST rationalization is creating multiplier effects and with benign
inflation trajectory, there is a need to recalibrate the monetary policy stance to mitigate market confusion regarding future path for monetary policy.
The RBI has already reduced the repo rate by 100 basis points since February, amidst declining CPI inflation. After reducing the repo rate three times in a row, the RBI hit a pause button in August. The six-member Monetary Policy Committee (MPC) headed by the RBI Governor Sanjay Malhotra is scheduled to meet on September 29 for a three-day deliberation to decide on interest rates. The decision will be announced on October 1.
Experience of 2019 also indicates that the rate rationalisation (primarily focused on reducing rates for common goods to 18 per cent from 28 per cent) led to almost 35 bps decline in overall inflation in
just a couple of months, it said.
"Additionally, with the new CPI series, we expect further moderation of 20-30 bps in CPI. All these factors (GST, base revision) indicate that CPI inflation will remain around the lower end of inflation target for the entire FY26 and FY27," it said.
