India’s inflation is at a 77-month low. SBI wants the Reserve Bank to cut interest rates now—or risk making a costly mistake that could haunt the economy.
The State Bank of India is ringing alarm bells ahead of the Monetary Policy Committee meeting from August 4 to 6, urging the RBI to slash rates by 25 basis points. Their argument? The economy’s cooling inflation and muted credit growth demand immediate action.
“We’re living in a frontloaded world,” SBI Research warns, making the case that delaying a cut would be a textbook “Type II error”—misjudging persistent low inflation as temporary and doing nothing while output weakens.
India’s CPI inflation hit just 2.1% in June, its lowest since 2018, and is expected to slide further. SBI projects FY26 inflation will average between 2.7% to 2.9%, well below the RBI’s 3.7% estimate.
And it’s not just vegetables pulling CPI down. Prices for cereals, pulses, and proteins are also tumbling, giving RBI more room to maneuver. “Even festive season is frontloaded in FY26,” the report notes, arguing that a pre-Diwali rate cut could light a fire under personal loans and retail credit—just like it did in 2017.
SBI also warns of waning corporate demand for bank credit, as firms turn to bonds and commercial paper instead. With deposit growth outpacing credit, banks face shrinking net interest margins and a potential mismatch in loan-deposit dynamics.
Meanwhile, structural breaks in home loan trends—detected post-February’s 100 bps repo cut—suggest borrowers are responding fast when the RBI acts.
SBI proposes bolder measures too: an external benchmark for NBFCs and even a floating deposit rate to fix transmission woes. “It’s time for the RBI to go all in,” the report suggests.
The message is clear: cut now or risk digging a deeper economic hole.
