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The Reserve Bank of India (RBI) is expected to hold off on an interest rate cut in its upcoming October policy review, according to a report by the State Bank of India (SBI). The report forecasts that retail inflation in August 2025 will rise above the 2 per cent mark, potentially reaching around 2.3 per cent. This upward move comes after July’s inflation reading hit a 98-month low of 1.55 per cent, down from 2.10 per cent in June and 3.60 per cent in July 2024.

The moderation in July was largely driven by food inflation, which dropped to a 78-month low of -1.76 per cent, its weakest level since January 2019. Core inflation also eased to 3.94 per cent, slipping below 4 per cent for the first time in six months. Excluding gold prices, core inflation was even lower at 2.96 per cent, nearly 100 basis points below the broader core CPI inflation.

December Rate Cut Also In Doubt

The SBI report cautioned that monetary easing may not come even in December if GDP growth data for the first and second quarters remains firm. “A rate cut in October looks difficult. Even a rate cut in December looks a tad difficult,” the report noted.

The Monetary Policy Committee (MPC) last reduced rates in June 2025 and opted for a pause in August. However, since the June cut, 10-year government bond yields have been inching higher—from around 6.30 per cent in July to over 6.45 per cent now.

Bond Yields Under Pressure

According to the report, bond yields are unlikely to ease until there is more clarity on the US tariff-related issues. It also emphasised the importance of viewing the yield curve as a public good, while noting that participants in India’s debt markets often exhibit varied behavior patterns.