Mumbai: A State Bank of India (SBI) research report has pitched for a 25 basis points (bps) cut in the repo rate, calling it the “best possible option” for the Reserve Bank of India (RBI). However, several economists believe the central bank may once again hold rates steady when the Monetary Policy Committee (MPC) announces its decision on October 1.
The Sanjay Malhotra-led MPC will begin its three-day deliberations on Monday against the backdrop of escalating geopolitical tensions and the US imposing a 50% tariff on Indian shipments.
Since February, the RBI has already reduced the key lending rate by 100 bps in three tranches, aided by easing consumer price index (CPI)-based inflation.
Diverging Views Among Economists
While SBI argues that benign inflation justifies another cut, others are cautious.
Madan Sabnavis, Chief Economist, Bank of Baroda: He expects the MPC to maintain a status quo. “Inflation is well below the 4% target, and growth is steady at over 6.5%. A cut could be considered later, especially if exporters need support amid tariffs.”
Aditi Nayar, Chief Economist, ICRA: She foresees headline CPI softening due to GST rationalisation but sees inflation inching up after November. “The repo rate decision is a close call, but status quo seems more likely.”
Dharmakirti Joshi, Chief Economist, Crisil: He predicts a rate cut in October itself, citing lower-than-expected inflation and GST rationalisation’s disinflationary effect. He also highlighted the US Fed’s recent rate cuts, which may give RBI policy space.
Mandar Pitale, Head – Financial Markets, SBM Bank (India): He expects the MPC to wait and watch. “The baseline is a prolonged pause with a small chance of a cut in December, depending on growth-inflation dynamics.”
Impact of GST 2.0 Rationalisation
Effective September 22, GST has been simplified into a two-rate structure of 5% and 18%, replacing the earlier 5%, 12%, 18%, and 28% slabs. Nearly 99% of daily-use items have become cheaper, which is expected to moderate inflation further.
Repo Rate Transmission
According to the RBI’s latest Bulletin, banks have already passed through much of the 100 bps reduction between February and August 2025 to lending and deposit rates. This indicates that monetary easing has been effective in reaching end borrowers.
Policy Outlook
With global and domestic uncertainties in play, experts remain split. While some see room for a cut in October, others advise patience. The final decision will be revealed on October 1.
Leave a Reply