India’s inflation is heading toward its lowest level since 2004, thanks to upcoming GST rate adjustments and smoother India-US trade talks. A new report from the State Bank of India (SBI) urges the Reserve Bank of India (RBI) to cut interest rates in September. This move would help the RBI look ahead and keep the economy steady.
The RBI’s Monetary Policy Committee (MPC) meets from September 29 to October 1. In August, it held the key policy rate steady at 5.50% after easing rates earlier. Now, with inflation cooling fast, experts see a window for action.
Dr. Soumya Kanti Ghosh, SBI’s Group Chief Economic Advisor, says the CPI inflation bottom hasn’t hit yet. “We expect it to drop another 65-75 basis points because of major GST rationalisation,” he noted. Even without those changes, inflation could dip below 2% in September and October. Add in the GST tweaks, and October’s CPI might hit around 1.1%—the lowest since 2004.
Ghosh points to 2019 as proof. Back then, cutting GST rates on everyday items from 28% to 18% shaved off about 35 basis points from overall inflation in just a few months. A new CPI series could bring even more relief, trimming another 20-30 basis points. All this means CPI inflation should hover near the lower end of the RBI’s 4% target (with a 2% band) through fiscal years 2026 and 2027.
Why act now? Ghosh argues there’s real merit in a September RBI rate cut. The central bank must communicate it carefully, as expectations have risen since June. But skipping it would be a mistake—much like past decisions to hold rates too long when inflation stayed low. With benign inflation expected to last into 2027, a cut would signal the RBI’s proactive approach on India inflation and economic growth.
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