Benign inflationary trends leave space for RBI’s MPC to cut repo further, economists say

Retail inflation, as measured by the CPI, stood at 0.7% in November 2025, slightly higher than 0.3% in previous month.
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FRANCIS MASCARENHAS

With India’s Consumer Price Index (CPI) remaining well below the 2 per cent mark for the last three months, and expectation that inflation will remain benign till H1 FY27, the Reserve Bank of India’s (RBI) monetary policy committee (MPC) could have scope for further repo rate cut, economists say.

“Given the dovish tone of the policy guidance—including repeated references to benign inflation conditions and subdued underlying pressures after adjusting for the roughly 50 bps inflation impact from gold—possibility of a final 25 bps rate cut in February 2026 to bring the repo rate to 5 per cent cannot be ruled out, although the precise timing of last rate cut is usually difficult to predict,” said Kanika Pasricha, chief economic advisor, Union Bank of India.

Retail inflation, as measured by the CPI, stood at 0.7 per cent in November 2025, slightly higher than 0.3 per cent in previous month.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said, “The inflation has broadly come in line with expectations. While the inflation trajectory is expected to move upward from here on, we see the trajectory fairly benign until H1 FY27. Going ahead, with RBI having kept additional actions data dependent we see some room for 25 bps of repo rate cut. However, the rate cutting cycle is clearly nearing the end, followed by a prolonged pause.”

Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, said with continued lower food inflation, higher kharif production, healthy rabi sowing, adequate reservoir levels and conducive soil moisture, the bank forecasts inflation for FY26 at 1.8 per cent and for FY27 at 3.4 per cent.

“With such unprecedented level of downward revisions and further prospects of downward revision looming large, the RBI has kept the door open for future rate decisions. However, for now, repo rate at 5.25 per cent will be lower for longer,” he said.

Rajani Sinha, chief economist at CareEdge Ratings, said headline inflation appears to have bottomed out in October but is expected to remain well below the RBI’s 4 per cent target for the rest of the year.

“The upcoming launch of the new CPI series will be an important development to watch. From a monetary policy perspective, the recent increase in inflation is unlikely to concern the RBI. Although there is room for another 25-bps rate cut, we expect the MPC to hold rates steady and keep policy space open for a future rate cut only if the growth outlook worsens,” she said.

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Published on December 14, 2025