Inflation Near 2.3% Threatens RBI Rate Cut Dreams, Warns SBI Research

New Delhi(The Uttam Hindu): The latest SBI Research report on Wednesday indicated that with August inflation expected to remain above 2% and close to 2.3%, the Reserve Bank of India (RBI) is unlikely to announce a rate cut in October. The report also warned that even a December rate cut may be difficult if growth data from the first and second quarters is taken into account.

India’s CPI inflation fell to a 98-month low of 1.55% in July, down from 2.10% in June and 3.60% in July 2024. This marks the ninth consecutive month of decline, largely due to a steep drop in food inflation, which hit a 78-month low. Compared to June 2025, food inflation in July fell by 75 basis points.

Core inflation also eased sharply, falling below 4% (3.94%) for the first time in six months. Excluding gold prices, core CPI dropped to 2.96% in July 2025 — almost 100 basis points lower than the headline core CPI.

In Q1 FY26, around 2,500 listed companies posted 5.4% revenue growth and nearly 6% EBITDA growth. However, in Q2, export-dependent sectors like textiles, gems & jewellery, leather, chemicals, agriculture, and auto components may face revenue and margin pressure.

The report also highlighted that U.S. CPI inflation rose to 2.7% in July on a year-on-year basis, up 40 basis points from April, reflecting the negative impact of tariffs.

Since the RBI Monetary Policy Committee cut rates in June and kept policy unchanged in August, 10-year bond yields have risen, moving from around 6.30% in July to above 6.45% now. SBI warns that without tariff clarity, bond yields may remain elevated. It added that while yield curves are a “public good,” market participants are showing unusually uniform selling behaviour since the June policy — causing price volatility despite core inflation being at an 8-year low.