India’s retail inflation has dropped to a historic low of 0.25% in October 2025, driven by a favorable base effect, continued easing in food prices, and the GST rate cuts. The record low CPI has sparked renewed debate over the timing and extent of monetary policy easing by the Reserve Bank of India (RBI).
While data appears to decisively tilt the balance toward a rate cut, the central bank may still tread carefully amid signs of resilient growth and credit market imbalances.
Low Inflation
While deflationary pressure in the food category gathered momentum, the sharp rally in gold prices kept core inflation – which excludes volatile food and fuel prices — elevated at 4.4%. for September 2025 has also been revised down, possibly reflecting some of the GST cut impact.
Economists now forecast FY26 inflation at around 2%, nearly 50 basis points below the RBI’s projection of 2.6%.
Policy Outlook: A Window for Rate Cuts Opens
With inflation comfortably below the RBI’s 4% target, the macroeconomic backdrop seems conducive for monetary easing. However, the next meeting of the RBI’s Monetary Policy Committee (MPC), scheduled from December 3 to 5, 2025, is likely to test the central bank’s willingness to act.
In the , RBI Governor Sanjay Malhotra-led MPC delivered a dovish pause, keeping the repo rate unchanged at 5.50% and maintaining a ‘neutral’ stance. That decision reflected confidence in growth — RBI raised its FY26 GDP forecast — and cautious optimism on inflation.
Now, as bond yields soften and global central banks, including the , turn dovish, expectations are rising that the RBI may deliver at least one 25 bps rate cut by December or early 2026. Benchmark 10-year yields have already eased 4 bps to 6.52% since the start of November, signaling market anticipation of policy easing.
Diverging Views Among Economists
While several economists see room for rate cuts, others caution that the may prefer patience over preemption.
Madhavi Arora, Lead Economist at Emkay Global Financial Services, believes the central bank’s focus on one-year-ahead inflation expectations may be misplaced given the repeated undershoot in actual inflation.
Arora estimates FY26 headline CPI below 2%, which she believes could support the case for a December rate-cut and beyond, depending on how the tariff scenario evolves.
On the other hand, Indranil Pan, Chief Economist at Yes Bank, urges restraint. “Credit growth has recently been on the rise and is also now higher than deposit growth. Any further cut in the repo rate carries the risks of putting pressure on the banks to reduce deposit rates further, that could hurt domestic savings, while the impact on credit growth may be limited,” he said.
Pan argues that the RBI should continue to show patience and have a full understanding of the growth dynamics beyond the impact and the festive season before cutting the policy rate again.
A middle ground comes from Hitesh Suvarna of JM Financial, who expects a dovish tone by the RBI rather than an outright rate cut in December. “The Fed’s pivot and weakening dollar create policy space for RBI easing. But given resilient growth, the RBI is likely to move tactfully,” he noted.
Balancing Growth and Prudence
The challenge for the RBI is striking a balance between nurturing growth and maintaining financial stability. The central bank has also been mindful of policy transmission risks — past rate cuts have not always translated into lower borrowing costs across the economy.
The record-low inflation print undeniably strengthens the case for monetary easing. If inflation continues to undershoot and growth momentum holds, a cautious, data-driven rate cut in December could mark the beginning of a new easing cycle.