Another 25 basis points rate cut best possible option for RBI: SBI research

A research report from the State Bank of India's Economic Research Department has said that there is merit and rationale for the Reserve Bank of India (RBI) 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 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 the pause button in August.

The RBI 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. The report stated, ‘There is merit and rationale in going for a September rate cut...This will require calibrated communication by the RBI as post June, the bar for rate cut is indeed higher.’

Further, it 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. It stated ‘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% in September and October.’