Mumbai, Aug 2 || RBI is expected to cut 25 bps in repo rates in light of soft inflation and global uncertainties, aiming to reinforce growth momentum while it has a policy window, a report said on Saturday
We expect the RBI to continue frontloading with a 25 basis point cut at its August MPC meeting. Tariff uncertainty, better GDP growth and CPI numbers in FY27 are all frontloaded, SBI Research said in a report. A frontloaded rate cut in August could bring an "early Diwali" by boosting credit growth, especially as the festive season in FY26 is also frontloaded, it said.
According to the report empirical evidence suggests a strong pick up in credit growth whenever the festive season has been early and has been preceded with a rate cut.
The report suggested that policymakers at central banks should avoid missing the window for effective intervention by acting too late, saying, "No point in backloading or committing a type II error."
A Type II error occurs when the central bank fails to reject the null hypothesis, assuming that the inflation undershoot is temporary, and hence does not cut rates—but in reality, inflation remains persistently low and the output gap continues to weaken.