Inflation at record low! Will your loan EMIs come down further? Explained

India’s retail inflation – also called the Consumer Price Index (CPI) inflation – hitting a record low of 0.25% in October may spell good news for the common man, not just in terms of a lower rate of increase in prices, but also with the prospect of lower loan EMIs in the coming months.Retail inflation in October has hit its lowest level since 2013 – the time that this series of CPI inflation started. The more-than-expected drop in inflation numbers to well below the Reserve Bank of India (RBI’s) target range of 2-6% bodes well for the possibility of further rate cuts by the central bank in the coming months.The data is also significant since with more room for a repo rate cut, the RBI is in a more comfortable position to provide growth impetus to the Indian economy, whose exports have been hit by Donald Trump’s 50% tariffs. India is the world’s fastest growing major economy, but uncertainty on the India-US trade deal has RBI in a wait-and-watch mode on growth measures. A repo rate cut in December now seems more likely than ever, believe economists.RBI started its rate easing cycle in February this year, and has so far cut the repo rate by 1%. A lower repo rate is expected to translate into lower loan rates, hence reducing the interest outgo and EMIs for loan borrowers.How much has the 1% rate cut translated into more money in your pocket and will your EMIs come down further? Here’s an explainer on India’s record low inflation, RBI’s policy outlook and what that means for loan takers in 2026:

Inflation miracle – lowest in over a decade!

National Statistics Office data shows that retail inflation eased to 0.25% in October, much below the 1.4% print in September and substantially lower than the 6.2% number in October last year. Food inflation actually entered the deflationary zone, contracting 5% in October. That’s a decrease of 269 basis points compared to September! The food inflation in October is also the lowest of the current CPI series.But what about the road ahead? Most economists are of the view that the retail inflation has bottomed out, and will likely rise in the coming quarters. However, the consensus is that it will remain benign, and well within RBI’s comfort zone, making it easier for the central bank to provide any growth impetus to the economy, if required.Dipti Deshpande, Principal Economist at Crisil Limited explains that October saw the strongest base-effect support to food prices, which helped pull down headline inflation. “However, this effect will now fade, limiting further declines in food inflation. Some upward pressure on headline inflation is therefore expected in the coming months,” she told TOI.“That said, lower GST rates on mass consumption items should keep a lid on the inflation rise,” she added.Yuvika Singhal – Economist, QuantEco Research told TOI, “Although we expect CPI inflation to bottom out in Q3 FY26 and pick up gradually thereafter, the outlook remains benign for the foreseeable future. The sustained trend of downward pressure on food prices since the beginning of this year, coupled with the recent reduction in prices driven by GST adjustments, has pulled the CPI inflation curve for FY26 systematically lower. We now estimate FY26 CPI inflation to average at 2.1% vs. our projection of 2.6% earlier.”“Consequently, compared to its H1 average of 2.2%, CPI inflation is estimated to be lower in H2 FY26, averaging at 1.9%. Several factors have contributed to this favourable outlook, including the positive impact of a strong monsoon on Kharif crop output, healthy reservoir levels facilitating an early start to Rabi sowing, and restrained increases in the Minimum Support Price (MSP) for both Kharif and Rabi crops, which have collectively contributed a disinflationary impulse of approximately 10 basis points. Additionally, the GST-driven reductions in prices have further supported this downward trend in inflation,” she added.The government announced sweeping cuts in the Goods and Services Tax (GST) in September, modifying the slab structure into two broad rates – 5% and 18%. How much of the reduced prices of goods has been reflected in inflation? According to Nomura, there was a 0.12 percentage point impact of GST cuts in the October numbers. The full impact is expected to reflect in the coming months. Nomura estimates that a full transmission of the GST cuts could result in a 1.6 percentage points reduction to the retail inflation basket.Yuvika Singhal sees a definite impact of GST rate cuts on the inflation trajectory, and the sharper than expected fall in CPI. “While it is difficult to quantify the exact impact of GST restructuring on the monthly CPI inflation print, there has definitely been a disinflationary impulse owing to GST changes in Sep-25. The impact is palpable in the case of price of goods (excluding primary food, fuel, and precious metals) – which contracted by 0.47% in Oct-25 compared to a median increase of 0.74% typically recorded in the month of October,” she explains.“Having said that, price discovery for products affected by revised tax rates remains ongoing. Our analysis of online prices for select high-selling items on Amazon over the past month suggests that part of the initial price reductions introduced when the lower GST rates took effect on 22–23 September 2025 has since been reversed. Specifically, of the median 16.4% price reduction observed immediately after the GST implementation, approximately 6.3% has been subsequently unwound. These price adjustments reflect a normal market response to the new tax regime and may be influenced by stronger festive-season demand, efforts by retailers to recoup losses from pre-GST inventory sold at lower prices, and/or the effects of rupee depreciation,” she notes.“As such, the impact of GST price cuts may extend beyond one inflation print. A clearer picture would emerge by the end of CY25. Overall, we estimate GST rationalization to reduce CPI inflation to the tune of ~130 bps, of which only 60-70 bps is likely to see a passthrough, given market rigidities,” she added.According to CRISIL’s Dipti Deshpande, a closer look at inflation data indicates that most household electronics and automobiles have already reflected the GST benefits, while pass-through in fast-moving consumer goods is still underway.

Will RBI cut repo rate in December?

At the start of 2025, the repo rate stood at 6.5% – and as the end of the year approaches, it has come down by a full 100 basis points! Where will the easing cycle stop? Will RBI wait for more clarity on the India-US trade deal, or is time ripe for another rate cut?Dipti Deshpande expects the RBI to cut repo rate in the December policy review which is scheduled between December 3-5. “CPI inflation has consistently surprised on the downside this fiscal year. The sharp decline has pushed the average inflation for the first five seven months down to 1.9% – below the RBI’s lower inflation tolerance band – creating space for monetary easing. We see the likelihood of a 25 basis points repo rate cut in December,” she says.Yuvika Singhal of QuantEco Research also expects a 25 basis points reduction in repo rate to 5.5%.“Given the deeper than anticipated trough in FY26 CPI inflation, we maintain our expectation that the RBI will announce a 25 basis points repo reduction at its Dec-25 policy meeting,” she says. Singhal is of the view that while the domestic environment continues to provide support to the growth outlook, driven in particular by GST reductions and the strong momentum in government capital expenditure, the external landscape remains challenging.“The 50% tariff imposed by the US on Indian goods continues to pose a significant vulnerability for the economy, with its outsized impact on MSMEs and jobs. The RBI’s recently announced trade relief measures, aimed at alleviating the accumulating stress in select sectors, further highlight the need for policy support to sustain growth. In this context, coordinated monetary and fiscal actions can play a critical role in strengthening the economy’s resilience,” she says.

Will your loan EMIs continue to come down in 2026?

The math for your home or car loan interest rate is simple: RBI lends to commercial banks at an interest rate which is called the repo rate. If the repo rate is high, banks in turn charge their customers a higher lending rate for loans. A lower repo rate allows banks to charge a lesser interest rate, hence decreasing the EMIs that borrowers have to pay.With the RBI cutting the repo rate by 1% in this year, EMIs have come down too – for new borrowers and those with a floating interest rate loan. The financial system works with a lag – it takes some time for the banks to pass on the benefits of lower repo rate to borrowers.According to data shared by BankBazaar.com, most major banks have cut their lending rates anywhere from 85 basis points to 110 basis points.“While the Public Sector Banks (PSBs) were early to cut the rates, most large Private Sector Banks (PVBs) have followed suit. The spread on the repo has also shrunk across PSBs and PVBs. The spread for most PSBs is currently 2% or less. The PVBs historically charge a higher spread and most of them are above 2%. However, the spreads have shrunk here, too,” says Adhil Shetty, CEO at BankBazaar.com.According to Bankbazaar.com’s calculations, if the original home loan interest is assumed to be 8.5%, with a 1% transmission, it now stands at 7.5%. For a home loan with a 20-year tenure, this results in substantial reduction in interest outgo. For example;

So will this interest burden come down even more in the coming months? It’s quite likely!“Home loan EMIs are directly linked to the repo, and any change to the repo rate will cause the EMIs to change. Given the low levels of inflation, it is highly probable that the RBI will cut rates again in this fiscal. The US Fed cutting rates despite high inflation in the US could be another impetus to the RBI’s decision,” Adhil Shetty tells TOI.With more rate cuts expected in the upcoming policies, loan borrowers may soon have a big reason to cheer in the new year as well!