The reduction in GST rates by the government may reduce the burden on the common man’s pocket in the coming days, but the retail inflation data released on Friday has increased some concerns. According to latest government data, the common man’s plate has become more expensive in August. Retail inflation rose from a low of 1.55% in July last month to 2.07%. This means that the relief from inflation in the last months has decreased slightly in August. Although GST 2.0 will come into effect from Navratri i.e. 22 September, people still have expectations from RBI.
According to a HSBC report, if companies take its benefits to consumers, recent deductions in GST may reduce inflation. If this happens, the Reserve Bank of India (RBI) can reduce the repo rate by 0.25% in the fourth quarter of this year to 5.25%. According to the report, tax deduction may reduce retail inflation (CPI) by 1%, but if companies give partial benefits to consumers, inflation will only decrease by 0.5%. In such a situation, the reduction in repo rate can play an important role, which can directly get relief to people.
EMI burden may be reduced
The report said that the government will harm the government due to decrease in GST rates, but the common man will benefit. However, increasing consumption throughout the year may increase the GDP growth rate by 0.2%. But this will happen only when the government does not impose more taxes to compensate for this increased consumption. Apart from this, if the common man has more money in his hand, then consumption will also increase. The reduction in repo rate can play a big role in this.
Emphasis will be given to increase consumption
HSBC also said that the decrease in GST should show a widespread impact. If it is combined with a low cost of loan repayment due to income tax cut (0.3%of GDP) and repo rate reduction (0.17%of GDP) this year, the total increase in consumption can be up to 0.6%of GDP. However, people can put some part of it in savings, which will reduce the actual profit slightly.
When was the last cut in the repo rate?
The RBI kept the repo rate stable at 5.5% in its Monetary Policy Committee (MPC) meeting in August. However, the central bank had earlier cut the repo rate by 0.50% or 50 basis points in June. This was the third time in a row when the RBI cut the repo rate. Earlier, the repo rate was reduced by 0.25% in the last two meetings of February 2025 and April 2025.
