India Inflation Hits Record Low 0.25% in October, Strengthening RBI Rate Cut Expectations

This analysis is based on the Wall Street Journal report [1] published on November 12, 2025, which reported that India’s consumer-price growth hit a fresh low in October, continuing a trend of declines that has underpinned hopes for interest-rate cuts by the central bank. The inflation data showed headline CPI at 0.25% year-over-year, significantly below September’s 1.54% and market expectations, marking the lowest level since 2015 [0][2][3].

The inflation decline represents one of the most significant monthly drops in recent years, falling 119 basis points from September to October [0]. This sharp cooling was primarily driven by substantial food price deflation, with vegetables dropping 21.38% YoY, onions down 49.85%, and tomatoes declining 6.11% [0]. The full impact of GST rate cuts implemented earlier in 2025 also contributed significantly to the decline [0][3].

However, the headline figure masks underlying price pressures, with core inflation remaining elevated at 4.2% in October, still above the RBI’s comfort zone [0][3]. This divergence between headline and core inflation suggests that while external factors have temporarily suppressed overall prices, structural price pressures persist in the economy.

Indian equity markets responded positively to the inflation data, with the Sensex gaining 595 points (+0.71%) to close at 84,466.51 and the Nifty 50 rising 180.85 points (+0.70%) to settle at 25,875.80 [0][4][5]. The market extended gains for the third consecutive session, indicating sustained positive sentiment.

Sector performance showed divergent impacts:

• Communication Services
  : Outperformed with +1.38% gains [0]
• Banking and Financial Services
  : Mixed performance, with some banks benefiting from rate cut expectations [0]
• Consumer Sectors
  : Both Consumer Defensive (-0.14%) and Consumer Cyclical (-0.64%) stocks declined [0]
• Technology
  : Under pressure with -0.81% losses [0]

The Indian rupee opened slightly lower at 88.63 per dollar versus the previous close of 88.56, suggesting the inflation data was largely priced in by currency markets [0][5].

The inflation data significantly strengthens the case for monetary policy easing by the Reserve Bank of India (RBI). The current repo rate stands at 5.50%, unchanged since the October 2025 meeting [0][3]. The RBI has revised its inflation forecast down to 2.6% for FY26 from 3.1% [0][3].

BMI (Fitch Solutions) projects a 25-basis-point cut to 5.25% at the December 2025 RBI meeting [0]. However, the central bank faces a complex balancing act between supporting growth and maintaining price stability, particularly given that core inflation remains above comfortable levels.

The current low inflation environment appears driven more by temporary factors than structural improvements. The substantial food price deflation, particularly in perishables like onions and tomatoes, reflects seasonal patterns and supply-side improvements rather than sustained demand weakness [0][2]. The GST rate cuts’ full month effect also represents a one-time downward pressure on prices that may not persist.

The RBI faces a nuanced policy decision. While headline inflation has fallen well below the 2-6% target range, core inflation at 4.2% suggests underlying price pressures remain [0][3]. The GDP growth forecast has been raised to 6.8% for FY26, but concerns remain about H2 slowdown amid global trade tensions and geopolitical risks [0][3].

Analysts remain cautious about the sustainability of current low inflation levels. Standard Chartered suggests inflation may rise to around 4% in FY26, while some economists question whether current low levels are sustainable given seasonal food price patterns [0][3]. Historical patterns indicate food prices could normalize in coming months, potentially pushing inflation higher [0][2].

1. Food Price Volatility
   : Historical patterns suggest food prices could normalize in coming months, potentially pushing inflation higher [0][2]
2. Core Inflation Stickiness
   : At 4.2%, core inflation remains above comfortable levels and may require sustained policy attention [0][3]
3. Global Trade Disruptions
   : Ongoing geopolitical tensions could impact commodity prices and import costs [0][3]
4. Base Effects
   : Current low inflation partly reflects favorable base effects that may reverse in coming months [0][2]

1. Monetary Policy Flexibility
   : The RBI has increased room for rate cuts, potentially stimulating economic activity [0][1][3]
2. Market Sentiment
   : Positive market response suggests continued equity market upside potential if rate cuts materialize [0][4][5]
3. Sector Rotation Opportunities
   : Banking and financial services may benefit from rate cut expectations, while communication services showed strong performance [0]

The December 5-6, 2025 RBI meeting represents a critical decision point that could significantly impact market dynamics [0]. The effectiveness of previous 100-basis-point rate cuts since early 2025 is still filtering through the economy, adding complexity to policy decisions [0].

The inflation data reveals a complex economic landscape where headline figures mask underlying structural pressures. While the 0.25% CPI reading represents a significant achievement in price stability, the 4.2% core inflation indicates persistent price pressures in the economy [0][3]. The RBI’s policy response will need to balance these competing considerations while monitoring global uncertainties and domestic growth dynamics.

Market participants should recognize that the current low inflation environment may be temporary, with food price normalization and base effects potentially reversing in coming months [0][2]. The divergence between headline and core inflation suggests careful sector allocation and timing considerations may be warranted, particularly in financial services and consumer sectors [0].

The RBI’s revised inflation forecast of 2.6% for FY26 and the projected 25-basis-point rate cut in December 2025 provide important signals for market participants, though the sustainability of current price trends remains uncertain [0][3].