New Delhi: A day ahead of RBI's bi-monthly monetary policy, rating agency Ind-Ra on Monday said it expects RBI to cut interest rate by 25 bps to 7 per cent and sound cautious in its tone.


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"India Ratings and Research (Ind-Ra) expects the Reserve Bank of India (RBI) to take a gradual route of repo rate moderation (by 25 bps to 7 per cent) and sound cautious in its tone," the rating agency said in a statement.


Retail inflation was down sharply to 3.66 per cent in August, from 5.4 per cent at the time of RBI's previous policy announcement.


Wholesale prices have been falling in absolute terms and GDP deflator is negligible -- at its lowest in 16 years.


Ind-Ra said uncertainty will likely prevail in global markets on the delayed normalisation of rates in the US.


The rating agency believes that RBI will have limited headroom for a significant rate reduction in the upcoming policy.


RBI will tomorrow present its fourth bi-monthly monetary policy for the current fiscal amid a clamour by the government as well as the industry for a cut in the interest rate in view of subdued inflation.