The moderation in India’s retail inflation to a record low in October has provided the Reserve Bank of India (RBI) with greater space for the rate cut if the growth remains weak in the second of the current financial year, economists said.
“Moderating inflation provides the RBI with greater room to focus on supporting economic growth amid continued external headwinds and uncertainties surrounding the trade negotiations with the US. If growth weakens in H2FY26, the latest inflation readings could create scope for a rate cut,” CareEdge ratings said in a report.
Further, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group said such a backdrop strengthens the case for an RBI rate cut in the December MPC meeting. A combination of strong growth momentum and ultra-low inflation creates a supportive environment for both equity and fixed-income markets in the near term.
India’s retail inflation eased sharply to 0.25 percent in October, its lowest level in the current series that began in 2013, down from 1.44 percent in September.
The moderation was led by a continued decline in food prices, with the food index falling to -5.02 percent in October from -2.3 percent in the previous month, reflecting a broad-based softening in key staples and edible items.
On November 14, Moneycontrol have reported that India’s retail inflation is likely to dip further in October and may remain below the Reserve Bank of India’s (RBI) lower tolerance threshold for a second consecutive month, potentially igniting hopes for another rate cut in the December monetary policy.
If a rate cut happens in December, it will be the first reduction by the central bank’s status quo in last two policies. The RBI has so far reduced repo rate by 100 bps from 6.50 percent to 5.50 percent.
Inflation has now averaged 2.22 percent in the first half of FY26, staying well below the RBI’s medium-term target of 4 percent. The trend reinforces the easing price environment that has prevailed since mid-year, driven by subdued global commodity prices and a high base effect.
Reflecting this moderation, the RBI recently lowered its FY26 inflation forecast to 2.6 percent from 3.1 percent earlier, while maintaining a cautious stance amid uncertainties in global energy and food markets.
On November 12, Moneycontrol also reported that as expectations build for another rate cut by the RBI in the December monetary policy, banks may come under renewed pressure, with their net interest margins (NIMs), which were earlier projected to stabilise in the third quarter, now likely to face a fresh squeeze.
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