India’s Inflation Falls Below RBI Target Again, Fueling Hopes of an Interest Rate Cut

As prices cool across the country, the central bank faces a new kind of challenge, one that could redefine its monetary stance in the coming months.

When prices fall faster than expected, relief mixes with concern. That is what India is experiencing now. The Consumer Price Index (CPI) released by the Ministry of Statistics and Programme Implementation (MoSPI) on 13 October 2025 showed inflation easing to 2.4% in September 2025, slipping below the Reserve Bank of India’s (RBI) lower comfort band of 2–6%. It was the second time in 2025 that the inflation rate dipped under the RBI’s target range.

The drop came after months of softening food prices, especially vegetables and edible oils. Yet, the question remains: how will this impact the RBI monetary policy expectations in the upcoming policy meeting?

India Inflation Rate 2025 Trends: What the Numbers Reveal

The MoSPI report pointed out that retail inflation fell steadily through 2025. Prices of cereals and pulses showed moderation, while vegetables entered deflation for the fourth straight month. However, core inflation, which excludes food and fuel, remained sticky at around 4.4%, indicating that the fall is not uniform across all categories.

The following table presents the inflation trend during 2025 as per official MoSPI data.
 

These figures show that while food prices cooled considerably, services and housing kept overall inflation from sliding deeper. Economists say this pattern could influence the RBI’s rate stance in December.

The recent moderation also pushed inflation expectations lower for households, as noted in the RBI’s Inflation Expectations Survey of Households (IESH) published in September 2025. Consumers now expect prices to stay stable or rise modestly in the next quarter.

Consumer Price Index India Analysis: What Lies Beneath

The CPI measures how the prices of everyday goods and services change for consumers. The Consumer Price Index India analysis for September 2025 shows that food and fuel contributed the most to the decline, but essential items like housing, transport, and gold remained firm.

The Wholesale Price Index (WPI) report issued by the Commerce Ministry on 14 October 2025 added another layer to this story. The WPI dropped to 1.1% in September 2025, compared to 2.3% in August 2025, as input costs for producers declined.
 

The fall in wholesale prices signals easing cost pressures for manufacturers. However, if prices continue to fall, it may discourage producers from expanding output, which can hurt growth. This is where the interest rate cut predictions in India come into play.

RBI Monetary Policy Expectations: Balancing Growth And Stability

The RBI’s Monetary Policy Committee (MPC), in its October 2025 meeting, kept the repo rate unchanged at 6.25%, citing the need for stability amid a fragile global backdrop. The committee also revised India’s FY26 inflation forecast to 3.8% and increased its growth outlook to 7%, according to the RBI’s Monetary Policy Report (October 2025).
 

Experts say the next meeting in December 2025 will be decisive. A few research houses such as SBI Research and ICRA have forecast a 25-basis-point rate cut if inflation stays below 3%. But RBI insiders remain cautious, arguing that policy transmission of earlier rate changes is still incomplete.

Interest Rate Cut Predictions India: Learning From The Past

This is not the first time India has faced this situation. In 2019, retail inflation briefly fell below 3 percent. The RBI responded by cutting the repo rate several times that year. But credit growth did not pick up immediately. Lending rates took months to adjust, and investment stayed weak.

That episode remains in policy memory. In an earlier coverage, it was noted how the RBI preferred stability over haste, even when global rates were easing. This time too, analysts expect a mix of caution and readiness to act if growth weakens further.

The Economic Survey 2024–25 also warned that cutting rates alone cannot drive growth unless credit transmission improves and businesses increase investment appetite.

LoansJagat’s article “RBI Paper Says Monetary Policy Transmission to NBFCs Remains Incomplete” highlights how past repo cuts did not fully reach NBFC borrowers, a lag in transmission that may temper the impact of new rate cuts. 

Economic Outlook After Inflation Drop: The Broader Picture

The recent moderation in prices has created both relief and worry. A softer inflation rate supports household budgets and gives policymakers space to encourage demand. But too sharp a decline can indicate weak consumption. 

The government’s fiscal stance will matter as much as the RBI’s policy moves.

According to MoSPI’s State Inflation Map (August 2025), some regions are already facing near-zero inflation.
 

This uneven spread shows that the inflation story is not uniform across India. Urban areas with strong service economies are showing higher price resilience, while rural states are seeing lower price growth due to better harvests and reduced supply chain costs.

The Finance Ministry’s Monthly Economic Review (September 2025) noted that domestic demand remains steady, supported by housing and auto sectors, though rural consumption has yet to pick up fully.

Conclusion

India’s inflation has cooled faster than anyone expected, falling below the RBI’s comfort band once again. The India inflation rate 2025 trends suggest a temporary disinflationary phase driven by food prices, not a broad slowdown. The coming months will show if this trend deepens or reverses.

The RBI now faces a familiar test: should it act early to boost demand or wait to confirm the trend? Either way, its decision in December will set the tone for India’s economic outlook after inflation drops and decide how soon households and industries begin to feel the next shift in the policy cycle.
 

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