RBI rate cut: SBI sees 25 bps easing as best option; why experts prefer status quo

A 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), even as several experts believe the central bank’s Monetary Policy Committee (MPC) may once again choose to hold rates steady in its upcoming policy review.The Sanjay Malhotra-headed MPC will begin its three-day deliberations on Monday against the backdrop of ongoing geopolitical tensions and the US decision to impose 50 per cent tariffs on Indian shipments. The policy decision will be announced on October 1, PTI reported.The RBI has already reduced the key repo rate by 100 bps in three tranches since February, citing easing consumer price index (CPI) inflation. However, it kept rates unchanged in the August policy, adopting a wait-and-watch stance to gauge the impact of global developments, including tariffs, on domestic growth.The SBI study argued that a 25 bps reduction in the repo rate has both “merit and rationale,” as retail inflation is expected to remain benign even through the next financial year.On expectations from the MPC, Madan Sabnavis, Chief Economist, Bank of Baroda, told PTI “While we do believe that there is limited scope for any change in the repo rate in this policy, there is a market view that given the current environment, a rate cut would be warranted.”He added that inflation is well below the 4 per cent target both before and after GST 2.0, while growth is projected to steady above 6.5 per cent for the year, leaving “no imminent threat” even after factoring in tariff effects. “Under these conditions, we expect a status quo. A change of stance could probably be considered to assuage sentiment and bond yields,” he noted.Aditi Nayar, Chief Economist, ICRA, said GST rationalisation could lower headline CPI by 25-50 bps during Q3 FY26 to Q2 FY27 relative to earlier estimates, bringing the FY26 average to 2.6 per cent. “GST rationalisation is unambiguously set to moderate inflation. However, this is the outcome of a policy change and will likely be accompanied by stronger demand. This suggests a status quo for the repo rate in the October 2025 policy review, in what appears to be a close call,” she said.Effective September 22, GST has been streamlined into a two-tier structure of 5 per cent and 18 per cent, from the earlier four slabs. The change has resulted in reduced prices for 99 per cent of daily-use items.Dharmakirti Joshi, Chief Economist, Crisil Limited, said: “We expect that a repo rate cut could come as soon as October due to lower-than-expected inflation. Core inflation, which indicates excess demand pressure, remains low by historical standards despite the significant impact of rising gold prices.” He added that GST rationalisation will likely add to disinflationary momentum.He further pointed out that the US Federal Reserve’s recent 25 bps rate cut, with another 50 bps reduction expected later this year, gives the RBI more flexibility to act.Mandar Pitale, Head – Financial Markets, SBM Bank (India) Ltd, however, said the MPC is expected to maintain a “status quo” this time, waiting to assess the impact of the recent CRR cut and any fiscal measures from the government. “In the near term, the baseline view thus remains that of prolonged pause with a small probability of residual rate cut in December MPC meeting depending upon the forward-looking growth inflation dynamics prevailing at that point,” he said.According to a study in the RBI’s latest Bulletin, the pass-through of the cumulative 100 bps repo rate cut since February to lending and deposit rates has been robust.