RBI May Cut Repo Rate 2025: Analysis, Impact on Economy, Borrowers & Markets

Current Repo Rate and Economic Context

• Current Repo Rate: As of August 2025, the RBI’s repo rate stands at 5.50%.
• Recent Rate Cuts: In 2025, the RBI has already implemented three rate cuts:
  • February: Reduced from 6.50% to 6.25%
  • April: Further reduced to 6.00%
  • June: A significant cut to 5.50%

These measures aimed to stimulate economic growth and manage inflation.

Inflation Trends: A Key Factor

• Current Inflation Rate: As of September 2025, the Consumer Price Index (CPI) inflation is tracking below 2%, well below the RBI’s target of 4%.
• Forecast: Analysts project that inflation will remain subdued, with estimates around 2.4% for the fiscal year 2025–26.

This decline in inflation provides the RBI with room to consider further rate cuts without breaching its inflation target.

SBI’s Perspective: Advocating for a Rate Cut

The State Bank of India (SBI) has recommended a 25 basis points rate cut, describing it as the “best possible option” for the RBI. SBI’s report emphasizes that maintaining the current rate could be a ‘Type 2 error’, which refers to failing to act when action is warranted. The report highlights that inflation is expected to remain benign even in the next financial year, supporting the case for a rate cut.

Upcoming MPC Meeting: What to Expect

• Dates: September 29 to October 1, 2025
• Announcement Date: October 1, 2025

The MPC’s decision will be closely watched, as it will provide insights into the RBI’s stance on economic growth and inflation management.

Potential Implications of a Rate Cut

• Impact on Borrowers: A rate cut would lower the cost of borrowing, potentially reducing Equated Monthly Installments (EMIs) for loans.
• Impact on Savers: Interest rates on savings accounts and fixed deposits may decrease, affecting returns for savers.
• Market Reactions: Financial markets may respond positively to a rate cut, with potential boosts to stock and bond markets.

Outcome

The RBI’s upcoming MPC meeting is pivotal, with a potential rate cut on the horizon. While inflation trends support such a move, the central bank will weigh various economic factors before making its decision. Stakeholders, including borrowers, investors, and policymakers, will be keenly awaiting the outcome.