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Key Points

The SBI Research report suggests a potential 125-150 basis points rate cut by the Reserve Bank of India in fiscal year 2026. This projection is based on benign inflationary patterns and expectations of inflation consistently staying below 3%. The report anticipates strategic rate reductions that could bring the terminal rate to 5.0-5.25 percent by March 2026. These monetary policy adjustments are expected to have significant implications for banking, deposit rates, and overall economic stability.

Key Points: SBI Forecasts 125 bps Rate Cuts by RBI in FY26

  • RBI likely to breach 'Neutral' rate by March 2026
  • Inflation expected to consistently remain below 3%
  • USD/INR pair projected to stabilize between Rs 85-87
2 min read

Cumulative rate cuts of 125-150 bps estimated in FY26: SBI report

SBI Research predicts aggressive monetary policy with potential rate cuts, inflation stabilization, and economic implications for 2025-2026.

"We expect rate cuts of 75 basis points in June and August (H1) and another 50 bps cut in H2 - SBI Research Report"

New Delhi, May 5

The benign inflationary patterns suggest an aggressive rate cut trajectory by the Reserve Bank of India, with key policy rate likely to breach the 'Neutral' rate by March 2026, an SBI Research report said on Monday.

A cumulative rate cut of 125-150 bps is estimated in FY26 in the best case scenario with inflation to breach 3 per cent consistently for next three months barring any food price shock/heatwave, the report mentioned.

"With multi-year low inflation in March and benign inflation expectations going forward, we expect rate cuts of 75 basis points in June and August (H1) and another 50 bps cut in H2 -- cumulative cuts of 125 bps going forward while 25 bps rate cut has already been initiated in February (that could put the terminal rate at 5.0-5.25 per cent by March 2026)," the SBI report projected.

"However, we feel, jumbo cuts of 50 bps, could be more effective than secular 25 bps tranches spread over the horizon," it added.

Based on the available estimates of natural rate, the neutral nominal policy rates works out at 5.65 per cent.

In response to the 50-bps cut in the policy repo rate since February 2025, banks have reduced their repo-linked EBLRs by a similar magnitude.

While the MCLR, which has a longer reset period and is referenced to the cost of funds, may get adjusted with some lag. Larger transmission to deposits rates is expected in the coming quarters.

"We expect 100 bps cut in bank deposits rates from current levels," said the report.

The current trajectory of the domestic inflation is well within the band of 2-6 per cent with average inflation based on available data placed at 4.7 per cent.

The report further stated that it expects the USD/INR pair to stabilise in the range Rs 85-87 for 2025.

"The domestic impact of tariffs on dollar will be visible in 2025 which will support rupee. Further, DXY is expected to fall as US domestic economy will adjust to tariff impact," it noted.

With close to Rs 4 lakh crore of open Market operations (OMO) done and another Rs. 1.25 lakh crore (or more) pending, G-Sec holding by banks as percentage of SLR portfolio is on the decline.

"Moreover, larger holding by the regulator, at times, tends to affect secondary market liquidity. The RBI dividend could top Rs 2 lakh crore," the report mentioned.

- IANS

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Reader Comments

R
Rajesh K.
This is excellent news for home loan borrowers like me! 🏠 With 125-150 bps cuts expected, my EMI might finally become manageable. RBI should definitely go for jumbo cuts as suggested - small cuts take too long to make a real difference to common people.
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Priya M.
While rate cuts sound good, I'm worried about senior citizens depending on fixed deposits. 100 bps cut in deposit rates means their monthly income will shrink further. RBI must balance growth with protection of savers.
A
Amit S.
The rupee stabilizing at 85-87 is crucial for importers like me. Last year's volatility was a nightmare for business planning. Hope RBI maintains this stability while cutting rates - we need both growth and stable forex.
S
Sunita R.
Good analysis by SBI, but they're being too optimistic about inflation staying below 3%. With unpredictable monsoons and global oil prices, we should be cautious. RBI shouldn't cut rates too fast only to reverse later like in 2013.
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Vikram J.
As an SME owner, these rate cuts can't come soon enough! Banks need to pass on the benefits quickly to MCLR loans. The 50 bps lag in transmission is hurting small businesses. RBI should monitor this closely.
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Neha P.
The report mentions RBI dividend of ₹2 lakh crore - this could be a game changer for government finances! Hope they use this windfall for infrastructure rather than populist schemes. More roads = more growth = more jobs 💪

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