RBI- Big news for common people. It would be appropriate and logical for the RBI to cut the repo rate by 25 basis points in the upcoming monetary policy , as retail inflation is expected to remain soft in the next financial year as well. SBI has said this in a study. If the repo rate is cut, it will be no less than a big Diwali gift for the general public. Because the public has already received the first big gift with the implementation of new GST rates from September 22. If the RBI cuts the repo rate, it will be the second big gift for the general public before Diwali.
The RBI has cut the repo rate by 100 basis points since February amid a decline in consumer price index-based inflation. After three consecutive repo rate cuts, the RBI kept interest rates unchanged in August. The Monetary Policy Committee, headed by the RBI Governor, which decides on policy interest rates, is scheduled to meet for three days from September 29. The decisions taken in this meeting will be announced on October 1.
“It would be appropriate and logical to cut interest rates in September, but for this the RBI will have to form a consensus in the MPC, as the chances of interest rate cut after June are actually higher,” said the research report ‘Introduction to MPC Meeting’ by the Economic Research Department of State Bank of India (SBI).
The report further said that consultations on RBI repo rate cut are an important toolkit and such discussions after the June MPC meeting have played a major role in strengthening returns. Inflation to remain moderate in the next financial year as well The report said that there is no point in repeating two mistakes (no rate cut with a neutral stance) by not cutting rates in September, as inflation will remain moderate in FY27 as well. The report said that the CPI figures for FY26-27 are currently around 4 percent or less. With the rationalization of GST, the CPI in October could be close to 1.1 percent, the lowest since 2004.
Inflation may fall
GST reforms could lead to a 65-75 basis point drop in inflation. SBI Group Chief Economic Advisor Soumya Kanti Ghosh has estimated in the report that the large-scale rationalisation of GST could lead to a further 65-75 basis points drop in consumer price index-based inflation. It said the experience of 2019 also shows that rate rationalisation (mainly by reducing rates on general goods from 28 per cent to 18 per cent) led to a decline in overall inflation by about 35 basis points in just a few months.
Furthermore, we expect a further softening of 20-30 basis points in the CPI due to the adoption of the new inflation metric. All these factors (GST and revision in the base year for measuring inflation) indicate that CPI inflation will remain near the lower end of the inflation target for the current fiscal year 2025-26 and the next fiscal year 2026-27. The government has assigned the RBI a target of maintaining retail inflation at 4 percent with a range of 2 percent.