The Reserve Bank of India (RBI) is expected to lower its key interest rate by 25 basis points during the September Monetary Policy Committee (MPC) meeting, according to a recent State Bank of India (SBI) report. The MPC meeting is scheduled for September 29-30, 2025, with the decision set to be announced on October 1, 2025. If implemented, this rate cut could marginally reduce loan and interest rates, providing relief to both businesses and consumers while stimulating economic activity across sectors.
SBI’s report highlights that inflation is currently under control and is projected to ease further in the coming months. The analysis predicts that inflation may remain below 2 percent in September and October, and it is expected to stay under 4 percent through FY27. The report also points out that any changes in GST rates could further push October inflation down to 1.1 percent, which would mark the lowest level since 2004. These favourable inflation conditions strengthen the argument for a timely rate cut.
SBI cautioned that failing to reduce rates now would constitute a “Type 2 Error” a wrong decision at the right time. The report draws parallels with the 2019 GST rate cut, which lowered inflation by around 35 basis points, emphasising that strategic timing is crucial in monetary policy decisions. With inflation under control and economic growth needing support, now presents an ideal window for the RBI to act decisively to bolster the economy.
In 2025, the RBI has already reduced the repo rate three times, amounting to a total 1 percent reduction. In February, the Monetary Policy Committee lowered the rate from 6.5 percent to 6.25 percent, marking the first reduction in nearly five years. This was followed by a 0.25 percent cut in April and a more significant 0.50 percent reduction in June. The repo rate, which dictates borrowing costs for banks, directly affects loan and deposit rates for consumers and businesses, making these adjustments crucial for economic activity.
During the previous MPC meeting from August 4-6, 2025, the repo rate was held steady at 5.5 percent. RBI Governor Sanjay Malhotra stated that all committee members agreed on maintaining the status quo due to uncertainties related to tariff policies. This decision reflected the RBI’s cautious stance, despite prior rate cuts and ongoing economic developments, indicating a measured approach to monetary management.
The repo rate is the RBI’s primary tool for balancing inflation and economic growth. When inflation rises sharply, the RBI increases the policy rate to make loans more expensive, thereby curbing consumer demand and stabilising prices.
Conversely, during economic slowdowns, the RBI cuts the repo rate to inject liquidity into the system, making borrowing cheaper and encouraging spending, investment, and business activity. Given current economic indicators, SBI emphasised that a 0.25 percent reduction in September could be both timely and impactful.
The Monetary Policy Committee consists of six members, three from the RBI and three appointed by the central government. The committee meets every two months to review and adjust the repo rate based on prevailing economic conditions. For FY 2025-26, six MPC meetings are scheduled, with the first held from April 7-9, 2025. The upcoming September 29-30 meeting will be the fourth in this sequence, with the official announcement expected on October 1.
SBI’s report also highlighted the importance of clear communication by the RBI. The scale of rate reductions since June 2025 has been substantial, and transparent messaging is considered a vital policy tool. Clear communication helps guide market expectations, stabilises investor confidence, and prevents financial volatility. A well-timed rate cut could signal positive momentum for India’s economy, making borrowing cheaper, encouraging corporate investments, and supporting consumer spending.
Reports of economists and market analysts watching closely to see whether the RBI will implement the anticipated rate cut or maintain a cautious approach are coming up. Given low inflation, previous easing measures, and favourable economic indicators, failing to act could represent a missed opportunity, potentially slowing momentum in key sectors and hindering economic growth.
With controlled inflation, prior easing, and conducive economic conditions, the September 2025 MPC meeting presents a critical opportunity for the RBI to take decisive action.
As India navigates post-pandemic recovery, global economic uncertainties, and domestic policy challenges, a measured repo rate cut could reinforce confidence in the economy while upholding the RBI’s commitment to stability and growth.
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