RBI Rate Cut in October Looks Tough as Inflation Seen Rising, Says SBI

India’s inflation is expected to rise in August, making it harder for the Reserve Bank of India (RBI) to cut interest rates in October, according to a report by the State Bank of India (SBI). The report said inflation could touch 2.3% in August, compared to 1.55% in July. Even a rate cut in December could be difficult if economic growth in the first two quarters stays modest.

July’s Consumer Price Index (CPI) inflation was at its lowest in over eight years, dropping from 2.10% in June and 3.60% a year ago. The fall was mainly due to lower food prices, with food inflation at –1.76%, its lowest since January 2019. Core inflation, which excludes volatile items like food and fuel, also dropped to 3.94% in July, and to 2.96% if gold prices are excluded.

On the business side, listed Indian companies posted modest growth in April–June 2025, with revenues up 5.4% and profits (EBITDA) rising 6%. However, the SBI report warned that export-focused sectors such as textiles, gems and jewellery, leather, chemicals, agriculture, and auto components may face pressure in the next quarter due to global tariffs.

Bond markets have also reacted to the RBI’s recent decisions. Since the June rate cut and the unchanged policy in August, the 10-year bond yield has risen from around 6.30% in July to over 6.45%. SBI noted that most market players are currently behaving in the same way, which is unusual and can distort price discovery, even with inflation at record lows.