Economists are predicting another repo rate cut by the Reserve Bank of India in the upcoming December monetary policy committee review. This expectation follows a notable easing in inflation, with the Consumer Price Index dropping to 0.3 percent year-on-year in October. The decline marks the lowest reading in the 2011-12 base series, signaling a positive trend for the economy.
Inflation’s slide was primarily driven by continued deflation in the food and beverages category. Additionally, core inflation showed some dampening effects, contributing to the overall decrease. These factors combined to create a favorable environment for potential monetary policy adjustments.
Crisil highlighted in its analysis that the sharper-than-expected fall in food inflation is a key driver. They also pointed to expectations of healthy food supplies for the remainder of the fiscal year. Benign global crude prices and benefits from GST rate cuts on mass consumption items further support this outlook.
As a result, Crisil projects CPI inflation to average 2.5 percent this fiscal year. This is significantly lower than the previous fiscal year’s 4.6 percent. The consistent undershooting of inflation forecasts strengthens the case for easing monetary policy.
Several major GST-affected categories did not show full transmission in October. This implies further spillover effects into November, which could impact inflation readings. November’s CPI is currently tracking at 0.9 percent, with potential downside due to these GST-related factors.
FY26E headline CPI is now estimated at less than 2 percent. This implies a further downside of 50 basis points to the RBI’s forecast of 2.6 percent. Such deviations from projections highlight the dynamic nature of the current economic environment.
Emkay Global Financial Services noted that repeated undershoots versus RBI’s inflation forecasts are significant. They argue that the policy focus on one-year-ahead inflation forecasts appears increasingly misplaced. In a fast-changing environment, this could necessitate more responsive monetary actions.
Aditi Nayar, Chief Economist at ICRA, emphasized that the MPC is likely to lower its CPI inflation projection for FY2026. It may be pared further from the 2.6 percent mentioned in the October 2025 meeting. This adjustment would reflect the soft sequential momentum in food prices and GST impacts.
She added that the dovish tone of the October 2025 policy document supports this view. Along with the inflation trends, it builds a strong case for a rate cut. A 25-bps reduction in the December 2025 policy review seems probable unless GDP growth surprises positively.
The potential repo rate cut hinges on evolving economic indicators. If Q2 FY26 GDP growth exceeds expectations, it might influence the MPC’s decision. However, current data largely favors accommodative monetary policy.
Inflation dynamics continue to shape policy expectations. The combination of low food inflation and GST benefits creates a compelling narrative for easing. Economists are closely monitoring these trends for further insights.
The repo rate remains a critical tool for the RBI in managing economic stability. As inflation eases, adjustments in this rate can stimulate growth and support recovery. The upcoming MPC review will be pivotal in setting the course.
Market participants are anticipating these developments with keen interest. A rate cut could influence borrowing costs and investment flows across sectors. It underscores the interconnectedness of monetary policy and economic activity.
Overall, the consensus among economists points towards a supportive stance from the RBI. With inflation well under control, the focus shifts to sustaining growth momentum. The December meeting will reveal the next steps in this monetary journey.