SBI flags 25 bps cut as RBI's best option in September MPC
Published on 22/09/2025 02:23 PM
A 25 basis points (bps) reduction in the policy rate at the Reserve Bank of India's Monetary Policy Committee (MPC) meeting this month is the most suitable step under current conditions according to a report released by the State Bank of India (SBI), ANI reported. The bank noted that inflation is easing and the outlook points to further moderation, creating space for the central bank to act.
The SBI report, cited by ANI, said that both the timing and economic conditions support a cut, arguing that avoiding action could amount to repeating a "Type 2 error" - holding rates with a neutral stance despite favourable trends. The report added that since June the bar for rate cuts has been raised, which means the RBI would need to communicate its decision carefully to avoid mixed signals.
CPI inflation is projected to average around 4 per cent or lower in FY27, SBI estimated. Without any Goods and Services Tax (GST) rate changes, inflation in September and October is already tracking below 2 per cent. With GST rationalisation, October CPI could drop to about 1.1 per cent, which would be the lowest level since 2004.
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The report also pointed to the 2019 GST rate cuts, when reducing taxes on commonly used items from 28 per cent to 18 per cent led to a decline of nearly 35 bps in overall inflation within two months. With the new CPI series, SBI expects a further moderation of 20-30 bps.
The MPC is scheduled to meet on September 29 and 30, with its policy outcome to be announced on October 1. SBI cautioned that delaying a rate cut could mean missing the opportunity to support growth at a time when inflation is not posing a risk.
According to the report, GST rationalisation, the base revision, and structural changes in CPI measurement together suggest inflation will likely stay at the lower end of the RBI's target band of 4 per cent plus or minus 2 per cent for both FY26 and FY27.
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