Mumbai, August 2: The State Bank of India (SBI) has called on the Reserve Bank of India (RBI) to implement a 25 basis points (bps) repo rate cut during the upcoming Monetary Policy Committee (MPC) meeting scheduled from August 5 to 7, citing persistently low inflation and sluggish credit growth as key reasons.
In its latest research report, SBI warned that delaying monetary easing could result in a “Type II error”—misjudging sustained low inflation as temporary and failing to act, thereby risking deeper output losses. India’s Consumer Price Index (CPI) inflation fell to 2.1% in June, its lowest level since 2018, and is projected to average 2.7%–2.9% in FY26, well below the RBI’s forecast of 3.7%.
SBI emphasized that the festive season in FY26 is frontloaded, and a pre-Diwali rate cut could stimulate retail credit and personal loans, mirroring the impact of a similar move in August 2017, which led to an incremental credit growth of ₹1,956 billion. The bank believes that easing rates now would ignite consumer demand across sectors such as housing, auto, and retail, potentially ushering in an “early Diwali boom”.
The report also highlighted structural shifts in home loan trends following February’s 100 bps repo cut, suggesting borrowers are highly responsive to RBI’s actions. With deposit growth outpacing credit expansion, banks face shrinking net interest margins and a mismatch in loan-deposit dynamics. SBI cautioned that maintaining a restrictive stance could dampen investment sentiment and widen the output gap.
The RBI’s dual mandate of price stability and output stabilization, SBI argues, necessitates timely intervention. “It’s time for the RBI to go all in,” the report concluded.
