Benign inflation trends leave room for RBI’s MPC to cut the repo further, say economists

Retail inflation, as measured by the CPI, stood at 0.7% in November 2025, up slightly from 0.3% in the previous month. | Photo credit: FRANCIS MASCARENHAS

“Given the dovish tone of the policy guidance – including repeated references to favorable inflation conditions and subdued underlying pressures after adjusting for gold’s inflation impact of around 50 basis points – the possibility of a final rate cut of 25 basis points in February 2026 to take the repo rate to 5 percent cannot be ruled out, although the precise timing of the latest rate cut is generally difficult to predict,” said Kanika Pasricha, chief economic adviser at Union Bank of India.

Retail inflation, as measured by the CPI, was 0.7 percent in November 2025, slightly higher than the 0.3 percent in the previous month.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said, “Inflation is broadly in line with expectations. While the inflation trajectory is expected to be upward from here, we see the trajectory quite favorable through the first half of FY27. Going forward, with the RBI keeping additional data dependent, we see some scope for a 25 basis point cut in the repo rate. However, the rate cut cycle is clearly nearing an end, followed by an extended lull.”

Soumya Kanti Ghosh, chief economic adviser at State Bank of India, said that given continued lower food inflation, higher kharif production, healthy rabi sowing, adequate reservoir levels and favorable soil moisture, the bank forecasts FY26 inflation at 1.8 percent and FY27 at 3.4 percent.

“With such an unprecedented level of downward revisions and further prospects of a downward revision, the RBI has kept the door open for future interest rate decisions. For now, however, the repo rate at 5.25 per cent will remain 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 percent 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 rise in inflation is unlikely to worry the RBI. While there is room for another 25 basis points rate cut, we expect the MPC to keep rates stable and keep the policy space open for a future rate cut only if the growth outlook deteriorates,” she said.

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Published on December 14, 2025