RBI Unlikely To Cut Rates In October As Inflation Expected To Rise

New Delhi, Aug 13 (KNN) The Reserve Bank of India is unlikely to reduce interest rates during its October policy meeting, as inflation is projected to climb above 2 percent in August 2025, according to a new report from the State Bank of India.

The SBI report indicates that August inflation figures are expected to reach approximately 2.3 percent, representing an increase from recent lows. This anticipated rise in inflationary pressure is likely to influence the central bank's monetary policy stance in the coming months.

The analysis suggests that even a potential rate cut in December may face challenges, particularly when considering growth performance in the first and second quarters of the fiscal year.

The report states that current economic indicators make both October and December rate reductions appear difficult to justify.

India's retail inflation, measured by the Consumer Price Index, reached a 98-month low of 1.55 percent in July 2025, declining from 2.10 percent in June and 3.60 percent in the same period last year.

This marked the ninth consecutive month of inflationary decline, primarily attributed to a significant reduction in food price pressures.

Food inflation experienced a notable decrease of 75 basis points in July, falling to negative 1.76 percent. This represents the lowest food inflation rate since January 2019, when it recorded negative 2.24 percent.

The substantial decline in food costs has been a key driver in overall inflation moderation.

Core inflation also demonstrated significant deceleration, dropping below 4 percent for the first time in six months to reach 3.94 percent. When excluding gold prices from the calculation, core inflation declined further to 2.96 percent in July, representing a reduction of nearly 100 basis points compared to the headline core CPI figure.

Following the Monetary Policy Committee's rate cut in June 2025 and subsequent status quo decision in August, government bond yields have shown an upward trend. The 10-year government bond yield has risen from approximately 6.30 percent in July to exceed 6.45 percent currently.

The SBI report indicates that bond yields are expected to remain elevated until there is greater clarity regarding tariff policies. The analysis also notes that the yield curve should be considered a public good, while acknowledging that market participants in India's debt market often exhibit varied behavioural patterns.

(KNN Bureau)