RBI October Rate Cut Unlikely as Inflation Set to Rise, Says SBI

The Reserve Bank of India (RBI) is unlikely to cut interest rates in October due to projected August inflation exceeding 2 percent. A December rate cut is also uncertain, contingent on upcoming growth figures.

The Reserve Bank of India (RBI) is unlikely to cut interest rates in its October policy meeting, as inflation in August 2025 is expected to rise above 2 per cent, according to a report by the State Bank of India (SBI). The report said with the August inflation print likely to top 2 per cent and be closer to 2.3 per cent. Even a rate cut in December could be challenging if growth numbers for the first and second quarters are taken into account.

It stated "a rate cut in October looks difficult. Even a rate cut in December looks a tad difficult". India's retail inflation (CPI) eased to a 98-month low of 1.55 per cent in July 2025, compared to 2.10 per cent in June 2025 and 3.60 per cent in July 2024.

This marked the ninth consecutive month of decline, driven mainly by a sharp drop in food inflation, which fell to a 78-month low.

Food inflation dropped by 75 basis points in July 2025 from the previous month. At -1.76 per cent, it was the lowest since January 2019, when it stood at -2.24 per cent.

Core inflation also saw a sharp deceleration, falling below 4 per cent for the first time in six months to 3.94 per cent.

Excluding gold prices, core inflation fell even further to 2.96 per cent in July 2025, nearly 100 basis points lower than the headline core CPI.

Since the Monetary Policy Committee (MPC) cut rates in June 2025 and maintained a status quo in August, the 10-year government bond yield has been rising. From around 6.30 per cent in July, it has now crossed the 6.45 per cent mark.

The report added that bond yields are unlikely to moderate until there is clarity on tariffs. It also noted that the yield curve should be treated as a public good, and in India's debt market, it is common for market players to behave differently.