Sunday , October 5 2025

India’s inflation edges up but rate-cut bets stay alive

16-09-2025

Bureau Report

NEW DELHI: India’s retail inflation (INCPIY=ECI), opens new tab accelerated to 2.07% in August as food prices inched higher over the previous month but stayed well within the central bank’s tolerance band, leaving room for another interest rate cut this year.

Annual retail inflation quickened from a revised 1.61% in July and was in line with a Media poll of 2.1%, data released on Friday showed. The Reserve Bank of India is mandated to not let inflation overshoot its tolerance range of 2%-6% for more than three quarters in a row.

The world’s fifth-largest economy is expected to expand at a pace of 6.5% this financial year, the fastest among major economies. However, low inflation has weighed on corporate earnings and equity markets, with tariffs of up to 50% on Indian exports to the US adding pressure.

With price rise in check, growth risks worsening and major central banks like the US Federal Reserve set to cut interest rates, economists see room for further policy easing from the Reserve Bank of India this year.

The central bank’s rate-setting panel will deliver its next decision on October 1.

“While we see a pause by the RBI in the upcoming policy, we do see some scope for rate cuts worth 25-50 basis points opening up from December policy if downside risks to growth materialize,” Upasna Bhardwaj, economist at Kotak Mahindra Bank, said.

The increase in headline and food inflation during August was mainly due to a rise in prices of vegetables, meat and fish, oil and fats, personal care and eggs between July and August, according to an official statement.

Food prices fell 0.69% in August from a year ago compared with a sharper decline of 1.76% in July while vegetable prices fell 15.92% after a decline of 20.69% in the previous month. Above-normal rainfall in August, and an expectation of similar showers in September could damage India’s summer-sown crops like rice, cotton, soybean and pulses and push their prices higher.

Core inflation, which excludes volatile items such as food and energy and is an indicator of demand in the economy, was at 4.1% in August compared with 4%-4.12% in July, according to three economists.

New Delhi’s tax cuts on food and hundreds of household and consumer items are expected to lower inflation in the coming months.

Inflation is expected to remain low for the remaining part of 2025, supported by lower food inflation and consumption tax rate cuts, Sakshi Gupta, economist at HDFC Bank, said.

“With even a 50-60% pass through of GST cuts, we see FY26 inflation moving down by 20-30 basis points compared to our current estimate of 2.8%,” she said.

Weaker growth due to punitive tariffs imposed by the US on Indian exports could also keep companies’ pricing power in check.

“We think downside risks to growth would be increasingly evident with global resets and monetary easing led by the Fed, and could open up space for easing in the rest of the year,” said Madhavi Arora, chief economist at Emkay Global Financial Services.

Indian Finance Minister Nirmala Sitharaman on Wednesday announced tax cuts on hundreds of consumer items ranging from soaps to small cars to spur domestic demand in the face of economic headwinds from punishing US tariffs.

The goods and services tax panel approved lowering taxes on everyday items and simplifying their structure, Sitharaman, who heads the panel that includes ministers from all states, told a late-night press conference.

Check Also

Italians stage strike in support of Gaza Palestinians

05-10-2025 ROME: Workers in Italy joined a general strike on Friday, not for better pay …