RBI Poised for Rate Cuts Amid Low Inflation, Uncertain Economy

The Reserve Bank of India is expected to implement rate cuts totaling over 100 basis points due to low inflation and economic uncertainties, as indicated by an SBI Research report. GDP growth projections for FY26 may face a downward bias, estimated at 6.3 percent.

As inflation reaches a multi-year low and the economic outlook remains uncertain, the Reserve Bank of India (RBI) may implement a substantial rate cut totaling 50 basis points in June and August, according to a report by SBI Research. The report suggests that cumulative rate cuts could exceed 100 basis points as concerns over economic uncertainty grow.

The report anticipates GDP growth for the financial year 2026 (FY26) to stand at 6.3 percent, with a potential downward bias. "With inflation hitting a multi-year low this month and expectations for moderate inflation ahead, we foresee rate cuts of 50 basis points in June and August. Overall rate cuts could surpass 100 basis points amid uncertain economic conditions," the report stated.

The RBI's Monetary Policy Committee (MPC) recently announced a 25-basis-point cut in the repo rate, reducing it from 6.25 percent to 6 percent, marking the second consecutive rate cut. Earlier, on February 7, the central bank had lowered the repo rate from 6.5 percent to 6.25 percent. Policy rate cuts aim to bolster economic growth by improving loan affordability and eligibility, with the MPC predicting a 4 percent inflation rate, backed by significant improvements in the food sector outlook.

In recent data released on April 15, inflation moderated in March, a trend likely to continue in the upcoming months. The CPI inflation fell to 3.34 percent in March 2025, a 67-month low, mainly due to a sharp decline in food inflation. According to the SBI Research report, the average Consumer Price Index (CPI) inflation for FY26 will hover around 3.9 percent. March also witnessed a decrease in food and beverage inflation by 95 basis points month-on-month, resting at 2.88 percent due to vegetable price deflation.

Core inflation, as measured by the consumer price index, stabilized at 4.0 percent in March, slightly down from February's 4.1 percent. The rural CPI inflation for March was 3.25 percent, marginally lower than February's 3.29 percent. Urban CPI inflation increased slightly to 3.43 percent in March from February's 3.32 percent.

(With inputs from agencies.)