Inflation SHOCK: India's Prices CRASH! Will RBI CUT Rates Dec 5?

Economy

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Updated on 13 Nov 2025, 08:59 am

RBI's Policy Tightrope: Record Low Inflation Meets Strong Growth Ahead of Dec 5 Meet

India's Consumer Price Index (CPI) inflation has plunged to a mere 0.25% in October, far below the Reserve Bank of India's (RBI) mandated inflation target band of 2% to 6%. This marks the third month inflation has been below the lower bound of 2%, with projections indicating it may stay there for at least two more months, potentially totaling six consecutive months below the target. Food inflation has been particularly weak, showing negative numbers or deflation for the fifth consecutive month.

While core inflation remains sticky above 4%, stripping out gold prices brings it down significantly. This persistent disinflation suggests the real interest rate in India is currently restrictive. The RBI, in its previous policy meetings, has refrained from cutting rates, citing forecasts for higher inflation in the latter half of the next fiscal year. However, these forecasts are likely to be revised downwards.

The central bank now faces a significant dilemma as it prepares for its Monetary Policy Committee (MPC) meeting on December 5. Strong economic growth, with Q2 GDP growth anticipated to exceed 7%, presents a counter-argument against immediate rate cuts. Economists suggest the RBI might use this strong growth figure as a reason to hold rates steady, deferring any decision to the February policy meeting, even as inflation remains significantly below target.

Impact: This situation creates market uncertainty. A rate cut could stimulate the economy, but holding rates might signal a focus on growth sustainability. The RBI's decision will heavily influence investor sentiment and borrowing costs across the economy.

Impact on Indian Stock Market: 8/10

Difficult Terms: CPI Inflation: Consumer Price Index inflation measures the average change over time in the prices of a basket of consumer goods and services. RBI: Reserve Bank of India, India's central bank responsible for monetary policy. MPC: Monetary Policy Committee, a committee of the RBI that decides on the policy interest rate. Deflation: A general decrease in the prices of goods and services, often indicating weak demand or an oversupply. Core Inflation: Inflation rate excluding volatile components like food and energy prices. GDP Growth: Gross Domestic Product growth, a measure of the total value of goods and services produced in a country. Real Interest Rate: The interest rate that has been corrected for inflation. Nominal GDP Growth: The growth in the total value of goods and services produced in an economy, measured at current prices, without adjusting for inflation. GST: Goods and Services Tax, an indirect tax applied on the supply of goods and services. WPI: Wholesale Price Index, measures the average change over time in the prices of goods in wholesale trade.