A 25 Bps Rate Cut In September Is The Best Possible Option For RBI, Says SBI Report

The Reserve Bank of India (RBI) should reduce the repo rate by 0.25 per cent or 25 basis points (bps) in the upcoming monetary policy meeting (MPC). This is the suggestion recommended in the State Bank of India (SBI) recent research report, titled, Prelude to MPC Meeting: September 29 - October 1, 2025. The report suggests that, considering the inflation rate of 2 per cent in September and October without taking into account the Goods and Services Tax (GST) rationalisation, and consumer price inflation (CPI) index of around 4 per cent or below, the RBI should cut the repo rate instead of maintaining the “neutral” stance. Notably, the bi-monthly meeting will run from September 29 to October 1, 2025.

The projections further suggest a decline in CPI to reach around 1.1 per cent by October due to GST rationalisation and base revision. “CPI inflation will remain around the lower end of the inflation target (4+2 per cent) for the entire FY26 and FY27”, the report says.

It also highlights other factors, such as rising benchmark yield, US Fed rate cut, and geopolitical risks, as key considerations for determining the repo rate.

The report notes that in India, the 10-year government bond yields have risen since the last repo rate cut in June 2025, which is in line with global trends, along with increased borrowings and changing investor preferences. There has been an increase in the total borrowing of State Development Loans (SDLs) in 2024-25, standing at 43 per cent compared to the five-year average of 39 per cent. This suggests a pile-up of debt by the States, whereas investors may demand more interest on new issuance, making debt management challenging.

According to it, the Federal Reserve (the central Bank of the US) may also reduce rates in September and October. It’s Federal Open Market Committee (FOMC), which is responsible for setting US monetary policy, expects up to two rate cuts this year. Of the 19 participants in the FOMC, nine indicated one rate cut, whereas the remaining 10 indicated two rate cuts this year by December 2025, it notes.

In short, SBI’s report underscores the need for strategic debt management, yield optimisation, and calibrated communication by the RBI to sustain growth momentum while keeping inflation supportive of growth. The report projects RBI as a forward-looking central bank, and recommends a rate cut in September as the best possible option for RBI given the benign inflation trajectory.