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SBI Projects Aggressive RBI Rate Cuts as Inflation Hits Multi-Year Lows

With inflation forecasted to stay below 3% in Q1 FY26, SBI Research anticipates up to 150 bps in cumulative repo rate cuts, potentially breaching the neutral policy rate by March 2026.

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Overview

  • India's CPI inflation dropped to a 67-month low of 3.34% in March 2025, driven by a sharp correction in food prices.
  • SBI Research forecasts cumulative repo rate cuts of 125–150 bps in FY26, including 75 bps in June and August, and another 50 bps in the second half of the fiscal year.
  • Inflation is expected to remain below 3% through June 2025, with an average CPI forecast of 3.7–3.8% for FY26.
  • The key policy rate could fall below the neutral nominal rate of 5.65% by March 2026, signaling a highly accommodative monetary stance.
  • The USD/INR exchange rate is projected to stabilize between ₹85 and ₹87, supported by Open Market Operations and a robust RBI dividend transfer.