Retail Inflation to Stay Below 3% Till June, SBI Sees Scope for 125 bps 'Jumbo' Rate Cuts

India's retail inflation is likely to remain below 3% till June this year, said the State Bank of India (SBI) in its latest report. It also estimated India's nominal gross domestic product (GDP) growth of 9-9.5% for the financial year 2026, as reported by PTI.

The report titled "Inflation and Rate Cut Trajectory" highlighted a sharp fall in consumer price inflation (CPI) in March 2025, which dropped to a 67-month low of 3.34%. The SBI Research attributed this fall to a significant correction in food prices.

The report highlighted a sharp fall in consumer price inflation (CPI) in March 2025, which dropped to a 67-month low of 3.34 per cent, mainly due to a significant correction in food prices.

"The sharp moderation in CPI inflation, hitting a 67-month low of 3.34% in Mar'25 due to a sharp correction in food inflation bodes well for lowering the average CPI headline forecast for FY26 below 4 per cent now (with below 3 per cent in Q1FY26)," the report said.

"The nominal GDP growth is expected to be in the range of 9-9.5 per cent for FY2025-26 (Budget: 10 per cent), signifying a Goldilocks period to slash the policy rates given the low growth and low inflation," it added.

The SBI also suggested that the nominal GDP growth is expected to be in the range of 9-9.5% for FY26, slightly below the 10% estimated in the Union Bugdet, signifying a Goldilocks period to slash the policy rates given the low growth and low inflation.

A 'Jumbo' Rate Cut Expected

Citing multi-year low inflation in March and benign inflation expectations going forward, the private sector lender further expect rate cuts of 75 basis points (bps) in June and August (H1) and another 50 bps cut in H2, a cumulative cuts of 125 bps going forward while 25 bps rate cut has already been initiated in February this year. That could put the terminal rate at 5.0-5.25% by March next year.

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