Is A Rate Cut Near? RBI Repo Rate Cut Expectations Rise As Inflation Hits Record Low

India’s inflation has dropped to its lowest in over a decade, raising hopes of a rate cut. Understand how RBI repo rate cut expectations are shaping public and policy sentiment.

When milk, vegetables, and rice prices fall at the same time, something shifts. That is what India is witnessing. In September 2025, retail inflation or headline CPI came in at 1.54 percent, as reported by the Ministry of Statistics and Programme Implementation on 12 October 2025. It has sparked fresh RBI repo rate cut expectations across financial and policy circles.

This level of inflation is below the central bank’s stated comfort band of 2 to 6 percent. Households are seeing cheaper essentials, while banks and borrowers are now keenly watching the Reserve Bank of India’s next move.

Why The RBI’s Next Step Is Under The Spotlight Now

The CPI number surprised many. Food inflation came in at minus 2.28 percent, which signals soft prices across households.

This change has sparked RBI repo rate cut expectations because inflation has fallen below the lower band of the RBI’s 2 to 6 percent target. Feels like a turning point for some families.
 

So the drop is not sudden. It has been sliding for months. Now that prices have dropped even further, the situation is different. The RBI repo rate cut expectations this time are stronger, given the pace and consistency of inflation’s fall.

How Does Monetary Policy Connect?

Monetary policy is the system through which the central bank controls money flow and lending cost. The RBI uses the repo rate to guide banks on borrowing costs. This is why the impact of low retail inflation on RBI decisions becomes so important. When inflation stays low, the cost of credit can come down. That is the basic idea.

The RBI in its Monetary Policy Statement on 1 October 2025 kept the repo rate at 5.50 percent and projected full-year inflation at 2.6 percent for FY 26. Growth was pegged at 6.8 percent.
 

A cut may not happen immediately, but the numbers are clearly building the case for it. This theme has appeared earlier. A similar drop in inflation was covered in the LOANSJAGAT article. The article showed inflation slipping below the lower threshold even in early 2025. And the concern then was the same. Will the central bank cut rates or wait for steady data. That’s how the public saw it anyway.

Conclusion 

Past phases show a slow response. In 2017 and again in 2020, the RBI waited even when inflation fell. Banks also held lending rates steady for longer periods. Maybe they preferred stability over speed. 

So there is a chance that this cycle may repeat, though the market hopes otherwise. The chances of RBI policy rate reduction look a little stronger now only because inflation is at its lowest in more than a decade.

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