- A 25 basis-point rate cut in September is the best option for the RBI, says SBI Research
- Inflation is expected to remain benign in fiscal 2027, potentially below 2% in Sept-Oct
- GST rationalisation may lower CPI to around 1.1%, the lowest in two decades
A rate cut in September is the best possible option for the Reserve Bank of India, according to SBI Research. The research arm of India's largest lender believes this move will serve to project the RBI as a forward-looking central bank.
"There is merit and rationale in going for a September rate cut," stated a report by SBI Research. Inflation will continue to remain benign even in fiscal 2027, it said, while noting that without a GST cut, it is edging below 2% in September and October.
The consumer price numbers for the next fiscal are now tracking around 4% or less, with GST rationalisation, which may bring the next month's CPI to around 1.1%, as per SBI Research. This would mark the lowest CPI figure in two decades.
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"There is no point in committing a Type 2 error again (no rate cut with neutral stance) by not cutting rates in September as inflation will continue to remain benign," said the firm's report.
The rate action by various central banks showcases perplexity, with a noticeable plateau after aggressive cuts, and emerging information provides little to no clarity, said SBI Research.
The report comes days ahead of the next Monetary Policy Committee meeting of the RBI, which is scheduled to begin on Sept. 29.
SBI Research indicated that the central bank's communications are the key amidst the current cacophony, being a crucial toolkit for monetary policy.
Across the world, benchmark yields have hardened, and India is no exception since the June policy, said SBI Research. Yields incline towards hardening almost across the globe, pricing in divergent risks and elevated borrowings, as the world order undergoes a catharsis, preparing for yet another "moment of truth", as per the report.
"Post the June rate cut, GST rationalisation creating multiplier effects and benign inflation trajectory, there is a need to recalibrate stance to mitigate market confusion regarding future path for monetary policy," it added.
"A 25 basis-point rate cut in September is the best possible option for RBI," stressed the report.
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