SBI Research Pushes for 25 bps Repo Rate Cut Ahead of RBI Monetary Policy Meeting

As India braces for the upcoming monetary policy review, SBI Research has recommended a 25 basis points (bps) cut in the repo rate, citing benign inflation and global headwinds. While some economists expect a status quo, the debate underscores the delicate balance between inflation management, growth, and global shocks like US tariffs.

SBI Research: Why a Rate Cut Now?

According to SBI Research, there is both “merit and rationale” for the Reserve Bank of India (RBI) to reduce the repo rate by 25 bps. The key reasons include:

  • Retail inflation under control, with expectations that it will remain below the RBI’s target of 4%.

  • GST rationalisation measures, which are expected to keep prices suppressed.

  • Impact of 50% US tariffs on India, already visible in slowing economic activity.

Diverging Views: Economists Weigh In

While SBI Research makes a strong case for easing, not all economists agree:

  • Bank of Baroda (Madan Sabnavis): Warns that GDP growth is still projected above 6.5%—a healthy figure. Inflation moderation alone may not justify a cut. He suggests that a policy stance change or targeted support for exporters might be more appropriate.

  • ICRA (Aditi Nayar): Sees GST rationalisation as a factor moderating inflation but points out stronger demand pressures. Calls it a “close call,” leaning towards status quo.

  • Crisil (Dharmakirti Joshi): Predicts that a repo rate cut is likely by October, citing lower-than-expected inflation and weak core inflation, despite rising gold prices.

RBI’s Recent Policy Actions

The Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, is meeting from September 29 to October 1, 2025.

  • Since early 2025, RBI has already reduced repo rate by 100 bps in three tranches, providing relief as inflation cooled.

  • The August policy review maintained status quo to gauge the impact of Trump’s tariff war.

  • Global cues, like the US Federal Reserve’s recent 25 bps cut (with another 50 bps likely this year), give RBI some space to act.

Key Economic Terms Explained

What is Monetary Policy?

Monetary policy refers to the actions taken by a country’s central bank—in India’s case, the RBI—to regulate money supply, credit availability, and interest rates. The goal is to maintain price stability, support economic growth, and ensure financial stability. It uses tools like repo rate, reverse repo rate, and cash reserve ratio (CRR).

What is the Repo Rate?

The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks in exchange for government securities.

  • If repo rate falls → borrowing becomes cheaper → banks pass on lower rates to customers → stimulates growth.

  • If repo rate rises → borrowing costs increase → demand and inflation cool down.

What is the Inflation Rate?

The inflation rate measures the rise in prices of goods and services over time, usually expressed as a percentage.

  • Moderate inflation (2–4%) indicates healthy demand and growth.

  • High inflation erodes purchasing power.

  • Very low inflation or deflation signals weak demand and economic slowdown.

What is the US Federal Reserve?

The Federal Reserve (Fed) is the central bank of the United States. It influences global markets by setting US interest rates, which impact global liquidity and investment flows.

  • When the Fed cuts rates → global borrowing costs reduce, often prompting emerging economies like India to ease as well.

  • When the Fed hikes rates → global capital flows out of emerging markets into US assets.

Conclusion: Will RBI Cut Rates?

The decision is finely balanced. On one hand, benign inflation and global rate cuts provide room for RBI to act. On the other, steady GDP growth and the need to watch tariff impacts could lead to another status quo.

If the repo rate is cut, it could boost market sentiment, ease borrowing costs, and support exporters, but risks remain if demand-side pressures push inflation back up.

The final verdict will be announced on October 1, 2025—a crucial date for India’s economy.


Location: Pune, Maharashtra, India

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