The Reserve Bank of India (RBI) is unlikely to lower its benchmark interest rates in the October 2025 Monetary Policy Committee (MPC) meeting, with retail inflation for August projected to rise to 2.3% after hitting a multi-year low in July. The cautious stance may persist into December as economic growth indicators show uneven momentum, according to a new analysis from the State Bank of India (SBI).
The Reserve Bank of India (RBI), headquartered in Mumbai, serves as the nation’s central bank, managing monetary policy, supervising the banking sector, and ensuring financial stability. The State Bank of India (SBI), the country’s largest public sector lender, frequently issues macroeconomic reports that influence investor sentiment and policy expectations.
According to SBI’s latest findings, the retail inflation (Consumer Price Index – CPI) for August is expected to rebound to around 2.3% from July’s 1.55% — the lowest since October 2016. This marks a reversal in the nine-month streak of declining CPI, primarily due to anticipated seasonal increases in food prices and possible pass-through effects from global commodity trends.
In July 2025, CPI fell sharply from 2.10% in June and 3.60% in July 2024. Food inflation — a major driver of household expenses — recorded -1.76%, the lowest since January 2019. The drop of 75 basis points from June was largely due to bumper harvests and strong supply chain efficiency in key agricultural commodities.
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Core inflation, excluding volatile food and fuel categories, slipped to 3.94% in July, breaking below the 4% level for the first time in half a year. When gold prices are excluded, core inflation eased further to 2.96%, nearly a full percentage point below headline core CPI — signaling weak underlying demand pressures.
On the growth front, India’s GDP expanded at 6.9% in Q4 FY25, but early estimates suggest moderation in Q1 and Q2 FY26, with private consumption showing signs of fatigue despite strong infrastructure spending. This slowdown, coupled with re-emerging inflation risks, complicates the MPC’s policy path.
In bond markets, the 10-year Government of India yield has risen from 6.30% in July to over 6.45% in August, reflecting market expectations of tighter liquidity and uncertainty around global trade tariffs. Analysts expect yields to remain firm until there is clarity on tariff measures and fiscal policy cues.
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The SBI report noted that the shape of the yield curve remains a vital indicator of market confidence, calling it a “public good” in the debt ecosystem. However, diverse trading behaviors among participants have led to uneven market reactions to macroeconomic signals.
If inflation moves toward the RBI’s 4% medium-term target more quickly than anticipated, a late-year rate cut could still be possible. However, for now, policy continuity — rather than easing — appears to be the central bank’s preferred course.
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