The Reserve Bank of India (RBI) may hold off on further rate cuts this year as inflation continues to moderate, according to a recent report by SBI Research. With August’s inflation expected to rise above 2 percent and settle around 2.3 percent, an October rate cut appears unlikely. Even December looks doubtful if growth figures for Q1 and Q2 remain under consideration.
India’s Consumer Price Index (CPI) inflation dropped to a 98-month low of 1.55 percent in July, down from 2.10 percent in June and 3.60 percent in July 2024. This marks the ninth consecutive month of decline, driven largely by falling food inflation, which has also hit a 78-month low.
Food inflation plunged by 75 basis points (bps) in July compared to June 2025, reaching -1.76 percent—its lowest level since January 2019, when it stood at -2.24 percent. Core inflation, excluding volatile food and fuel prices, also saw a sharp dip, falling below 4 percent for the first time in six months to 3.94 percent. Stripping out gold prices, core inflation slid to 2.96 percent, nearly 100 bps lower than the broader core CPI.
Corporate performance in Q1 FY26 showed modest growth, with around 2,500 listed companies reporting a 5.4 percent increase in revenue and a 6 percent rise in EBIDTA. However, pressure looms for export-dependent sectors like textiles, gems and jewelry, leather, chemicals, agriculture, and auto components, which could face revenue and margin challenges in Q2 due to tariff impacts.
The U.S. CPI inflation, not seasonally adjusted, rose to 2.7 percent year-on-year in July—40 bps higher than April’s reading—highlighting the negative effects of tariffs. Since the RBI Monetary Policy Committee (MPC) cut rates in June and maintained the status quo in August, the 10-year bond yield has climbed from 6.30 percent in July to over 6.45 percent. This upward trend may persist until there’s clarity on tariff policies.
SBI Research also pointed out anomalies in the bond market’s behavior. While debt market players often act counter-cyclically to RBI policy, post-June policy announcements saw all participants shifting uniformly toward selling—a surprising move that’s distorting price discovery despite inflation sitting at an eight-year low. The report emphasizes that the yield curve should function as a public good, reflecting market fundamentals rather than herd behavior.
As inflation remains subdued but growth concerns linger, the RBI faces a delicate balancing act. With bond yields rising and uncertainty around global tariffs, monetary policy may stay conservative in the coming months.