CHENNAI, Sept 13: Mixed views were expressed by leading economists on the stand that Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) would take on the repo rate with the inflation rate based on All India Consumer Price Index (CPI) for the month of August, 2025 inching up to 2.07 per cent.
They also factored the likely impact on the prices following the rationalisation of the Goods and Services Tax (GST) by the government.
According to the Ministry of Statistics and Programme Implementation, there has been an increase of 46 basis points in headline inflation of August, 2025 in comparison to July, 2025.
“Looking ahead, the recent rationalisation of GST rates is expected to have a positive impact on the overall inflationary environment. We estimate that it could lower CPI inflation by 70-90 bps annually under the current basket, assuming effective pass-through to consumers,” Rajani Sinha, Chief Economist, CARE Ratings said.
With food inflation subdued and demand-side pressures contained, the inflation projected for FY26 to 2.7 per cent from 3.1 per cent earlier.
Additionally, the forthcoming introduction of the new CPI series with a 2024 base year will be an important development to watch, as it may influence the estimated impact of the GST changes, Sinha added.
“From a monetary policy perspective, a stronger growth in Q1FY26 reduces the likelihood of additional RBI rate cuts. However, prolongation of 50 per cent US tariffs on Indian exports coupled with downward pressure on inflation may prompt RBI to consider further rate cuts,” Sinha added.
On the other hand, Dharmakirti Joshi, Chief Economist, Crisil, expects the RBI to cut the repo rate another 25 basis points later this fiscal.
“Given the lower-than-expected food inflation and the expected easing of core inflation in the coming months due to the reduction in the goods and services tax, we have revised our inflation forecast down to 3.2 per cent from 3.5 per cent for this fiscal,” Joshi said.
Excess rainfall and flooding in Punjab, Rajasthan and Telangana in August pose a risk to kharif crop production and could increase horticultural crop prices, but that is not a risk in Crisil’s inflation forecast, Joshi said.
“Inflation was anyway to be benign going by RBI forecasts and the focus would be more on growth. Given the stable Gross Domestic Product (GDP) path expected, we may expect status quo in rates and stance this policy,” Madan Sabnavis, Chief Economist, Bank of Baroda said.
“A continued spate of inflation undershoot vs RBI’s estimates would ensure FY26 inflation will likely undershoot RBI’s estimates by at least 50bps. Besides, the disinflationary bias may be increased further amid domestic GST rate cuts ahead,” Madhavi Arora, Chief Economist, Emkay Global Financial Services said.
“We assert the RBI’s focus on 1-year ahead expected inflation appears increasingly misplaced in an evolving world – particularly as the global landscape continues to shift toward a disinflationary bias in Asia,” Arora added.
“Ahead, we think downside risks to growth would be increasingly evident with global resets and monetary easing led by Fed (US Federal Reserve), and could open up space for easing in the rest of the year, even though the MPC seems to have raised the bar for further easing,” Arora said.
(UNI)
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