New Year gift from RBI likely — interest rates may be cut again

New Delhi (The Uttam Hindu) - Economists said on Thursday that due to the decline in inflation rate in October, the central bank may once again cut interest rates in the December Monetary Policy Committee (MPC).

Retail inflation fell to a record low of 0.25 percent in October, down from 1.44 percent in September. This is the lowest inflation rate ever recorded in the current CPI series. The decline in overall inflation is driven by a decrease in food inflation as well as core inflation.

Crisil said in its note that due to the more than expected decline in food inflation rate, strong supply of food products for the rest of the year, lower global crude oil prices and the benefits of GST reaching the common people, we estimate that the retail inflation rate may average 2.5 percent in this financial year, which is lower than last year's figure of 4.6 percent.

The note further stated that the impact of GST on several major categories was not fully transferred in October, and the effects will be seen in November. Retail inflation is currently at 0.9 percent in November, and may decline further due to the impact of GST. Headline inflation is now projected to be below 2 percent in FY26, which implies a further 50 basis points decline from the RBI's 2.6 percent estimate.

According to Aditi Nayar, Chief Economist at ICRA, the RBI's Monetary Policy Committee (MPC) may further lower its retail inflation forecast for FY2026 from 2.6 percent, given the softer sequential momentum in food prices as well as the impact of GST rate rationalization on several items in the CPI basket. She further said this paves the way for a further reduction in interest rates in the December monetary policy.