India’s Inflation Hits Record Low, Paving Way for RBI Rate Cut
India’s retail inflation dropped sharply to a record low of 0.25% in October, mainly due to falling food prices and tax cuts on essential consumer goods. This decline has strengthened expectations of a rate cut by the Reserve Bank of India (RBI) during its December policy meeting.
Economists note that low inflation, easing interest rates, and reduced consumer taxes are helping cushion Asia’s third-largest economy from the impact of U.S. trade tariffs. India’s economy, which grew 7.8% in the April–June quarter, is expected to slow slightly in the latter half of the year.
October’s inflation figure remained below the RBI’s 2–6% tolerance band for the second consecutive month, signaling stable price levels. In comparison, September inflation was revised to 1.44%, while analysts surveyed by Reuters had predicted a 0.48% rise for October.
Garima Kapoor of Elara Securities forecasted that India’s CPI could stay below 2% in FY26, paving the way for a December 2025 rate cut and possibly another 25-basis-point reduction in February 2026.
The government attributed the decline in headline and food inflation to the full effect of recent consumer tax cuts. In late September, GST on hundreds of daily-use products, including dairy and personal care goods, was reduced to stimulate domestic demand amid ongoing U.S. tariff pressures.
Food inflation recorded a 5.02% year-on-year decline in October, compared with 2.33% in September, while vegetable prices fell 27.57%, extending a steep downward trend.
Gold Prices Keep Core Inflation Elevated
Despite falling food costs, core inflation—which excludes volatile food and energy prices—stood at 4.4% in October, only slightly lower than 4.5% in September. Economists said rising domestic gold prices, which jumped nearly 5% during the month, kept core inflation from dropping further.
According to Capital Economics’ Shivaan Tandon, the surge in gold price inflation offset much of the benefit from GST cuts, maintaining underlying inflation pressures.
Meanwhile, cereal prices rose 0.92%, compared to a 2.1% increase in September, while pulse prices fell 16.2%, following a similar decline the previous month.
Economist Devendra Pant from India Ratings and Research suggested that the RBI could reduce its key repo rate by 25–50 basis points in December 2025, to prevent the economy from losing momentum. Pant expects retail inflation to average around 2.5% for the fiscal year, allowing further easing after 100 basis points of cuts already implemented in 2025.
RBI Governor Sanjay Malhotra confirmed that the current macroeconomic conditions offer policy space to support growth. The RBI’s Monetary Policy Committee is scheduled to meet from December 3–5 to decide on the next move.
