New Delhi, May 5, 2025 — A landmark report from the State Bank of India (SBI) signals potential relief for millions, projecting that the Reserve Bank of India (RBI) could cut interest rates by 125-150 basis points (1.25-1.5%) in FY26, driven by a sharp decline in inflation. With the Consumer Price Index (CPI) dropping to a 67-month low of 3.34% in March 2025, the report highlights a “Goldilocks period” of stable growth and low inflation, ideal for monetary easing. “This is a golden window for rate cuts to spur growth,” said SBI Chief Economist Soumya Kanti Ghosh, emphasizing the economy’s resilience.

The RBI has already reduced rates by 50 basis points in 2025, with cuts in February and April bringing the repo rate to 6%. SBI anticipates further reductions of 75 basis points by August and 50 basis points in the second half of FY26, potentially lowering the repo rate to 5-5.25% by March 2026—below the neutral rate of 5.65%. The report forecasts CPI staying below 3% in Q1 FY26, with an annual average of 3.7-3.8%, assuming stable food prices. However, core inflation, which hit 4.1% in March due to volatile gold prices, remains a concern. Excluding gold, core inflation is a milder 3.2%, supporting the case for cuts.

Lower borrowing costs could ease loan rates, benefiting businesses and homebuyers, though deposit returns may dip, impacting savers. SBI projects nominal GDP growth of 9-9.5% for FY26, slightly below the Union Budget’s 10% estimate, reflecting global uncertainties like tariff wars. As inflation softens and growth stabilizes, the RBI’s potential pivot to deeper rate cuts could reshape India’s economic landscape, offering a lifeline to borrowers while navigating global headwinds.