India's Inflation Sinks to Record Low! Is RBI Poised for a December Rate Cut? 📉

Economy

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Updated on 13 Nov 2025, 10:37 am

India's retail inflation eased dramatically to a record low of 0.25% in October, a sharp fall from 1.44% in September, marking the lowest rate since the current series began in 2013. This moderation is largely attributed to a significant decline in food prices, with the food index dropping to -5.02% from -2.3%, reflecting lower costs for essential food items and edible oils. Economists and analysts from firms like CareEdge Ratings and Anand Rathi Group suggest that this low inflation environment grants the Reserve Bank of India (RBI) more scope to support economic growth, particularly if growth falters in the second half of the financial year (H2FY26). This could strengthen the case for an interest rate cut in the upcoming December Monetary Policy Committee (MPC) meeting. A combination of robust growth momentum and subdued inflation is generally seen as positive for both equity and fixed-income markets in the near term. The RBI has already lowered its FY26 inflation forecast to 2.6% but remains watchful of global uncertainties. However, news also indicates that banks might face pressure on their Net Interest Margins (NIMs) if a rate cut materializes.

Impact This development is significant for the Indian stock market. Lower inflation can prompt the RBI to reduce interest rates, making borrowing more affordable for companies. This can stimulate investment, boost economic activity, and potentially lead to a more positive investor sentiment in the stock market, particularly benefiting interest-rate sensitive sectors. Investors in fixed-income assets may also find the environment more stable. Rating: 7/10

Difficult terms Retail inflation: The rate at which the prices of goods and services bought by consumers change over time, reflecting the cost of living. Reserve Bank of India (RBI): India's central bank, responsible for monetary policy, currency management, and regulating the nation's banking system. Rate cut: A reduction in the central bank's benchmark interest rate (like the repo rate), intended to make borrowing cheaper and encourage economic growth. Monetary Policy Committee (MPC): A committee within the Reserve Bank of India responsible for setting the policy interest rate. H2FY26: Refers to the second half of the Financial Year 2025-2026. Food index: A component of the overall inflation index that specifically tracks changes in the prices of food items. Net Interest Margins (NIMs): The difference between the interest income generated by a bank from its lending activities and the interest it pays out to its depositors, expressed as a percentage of its interest-earning assets.