As August inflation print likely to top 2 per cent and be closer to 2.3 per cent, a rate cut by the RBI in October looks difficult
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NEW DELHI — As August inflation print likely to top 2 per cent and be closer to 2.3 per cent, a rate cut by the Reserve Bank of India (RBI) in October looks difficult, SBI Research said on Wednesday, adding that even a rate cut in December looks a tad difficult if growth numbers for Q1 and Q2 are taken into consideration.
India’s CPI inflation moderated to 98-month low of 1.55 per cent in July, compared to 2.10 per cent in June and 3.60 per cent in July, 2024.
The July reading is marking the ninth consecutive month of decline and mainly due to decline in food inflation, which is also at 78-month low.
Food inflation declined by 75 bps in July, compared to June 2025. The food inflation in July, 2025 is the lowest at –1.76 per cent, after January 2019, when it was at –2.24 per cent.
The core inflation also decelerated sharply and for the first time in past 6 months stood below 4 per cent (at 3.94 per cent). Excluding gold prices, the core inflation decelerated below 3 per cent to 2.96 per cent in July 2025, almost 100 bps lower than the headline core CPI, accordion to the report.
Moreover, India Inc in Q1 FY26, around 2,500 listed entities, reported top line growth of 5.4 per cent while EBIDTA grew by around 6 per cent.
“In Q2, we may see revenue and margin pressure in export-oriented tariff affected sectors such as Textile, Gems and Jewellery, Leathers, Chemicals, Agriculture, Auto Components, etc. The overall US CPI inflation (not seasonally adjusted) has also registered a YoY growth of 2.7 per cent in July which is 40 bps higher than reading in April indicating negative impact of tariffs,” the SBI report mentioned.
Since the RBI MPC decided to cut rates in June and subsequent status quo in August, the 10-year yield has started rising.
From hovering around 6.30 per cent in July, it has now crossed the 6.45 per cent-mark. The bond yield may not become moderate until and unless a clarity would descend regarding tariffs.
“In this context we again want to highlight that yield curve is a public good. In the Indian markets, it is common to find debt market players behaving differently,” said the report.
For example, if one set of players acts pro-cyclically with the RBI monetary policy stance, the other set of players acts counter-cyclically and sometimes both the players act combatively.
“However, after the announcement of the June policy, almost all market participants are selling/behaving in the same manner. This is surprising and resulting in a skewed price discovery despite headline inflation at 8 year low,” said the report.