Inflation at 99-month low: Case for multiple repo rate cuts strengthens

India’s retail-inflation rate in September eased to a 99-month low, sharply below the Reserve Bank of India’s (RBI's) target band, strengthening the case for monetary easing in the coming quarters.

- ANJALI KUMARI

Economists have said this has opened up possibilities for several rate cuts, with the terminal policy rate expected to settle around 5 per cent by the end of next year.

“The September rate expectedly softened further to 1.54 per cent year-on-year (Yo-Y) on deflation in food prices. The core CPI inflation rate inched up as housing inflation rose. Retail prices month-to-date indicate that the October retail rate is set to fall to a series low of 0.5 per cent, cementing the case for a 25 basis-point cut in December,” said Aastha Gudwani, chief economist, Barclays.

Economists at UBS Securities echoed the view. Tanvee Gupta Jain, chief India economist, said in a report: “We continue to expect further 25-50bps repo rate cuts in the rest of FY26. We expect the headline CPI to average 2.4 per cent Yo-Y in FY26, marginally below the RBI's revised forecast of 2.6 percent.”

UBS noted that a combination of softening food prices, low energy prices, and the cuts in goods and services tax (GST) in late September will help keep inflation benign this year.

“Headline inflation could be lower by around 1 per cent on full pass-through of the GST cut,” the report added.