RBI Rate Cuts Unlikely Amid Persistent Inflation: SBI Report

SBI Research predicts that the Reserve Bank of India may delay interest rate cuts beyond February 2025 due to persistent inflation. The report foresees a slight ease in inflation starting in January, though largely due to base effects rather than a decrease in underlying pressures.

The Reserve Bank of India (RBI) is unlikely to cut interest rates in February due to ongoing inflation concerns, according to a recent report by SBI Research. The report suggests that while inflation might ease slightly from January, the change will stem mainly from base effects rather than a true dip in price pressures.

SBI Research estimates that the inflation rate will average 4.8 to 4.9 percent for the 2025 financial year, surpassing the RBI's target of 4.5 percent. This pushes the possibility of rate cuts beyond February 2025. The Ministry of Statistics and Programme Implementation reports food inflation at 10.87 percent, with vegetable prices soaring by 42.18 percent.

Inflation remains above the RBI's 6 percent tolerance level, with states like Chhattisgarh, Bihar, and Odisha showing rates far above the national average. The report highlights the stark gap between rural (6.68 percent) and urban (5.62 percent) inflation rates, largely due to the heavier weight of food items in rural spending.

A decline in vegetable prices is expected in November, but overall inflation could still exceed 5 percent in the coming months. Currency market volatility adds another layer of complexity, potentially discouraging the RBI from initiating a rate-easing cycle prematurely.