In October, India's consumer inflation rate fell to 0.25%, significantly easing from the previous month's 1.54% and below economists' predictions of a 0.48% increase. This decline strengthens the prospect of more policy easing by the Reserve Bank of India (RBI). Following this drop, the RBI adjusted its inflation forecast for the fiscal year ending March 2026 from 3.1% to a new estimate of 2.6%. Despite this positive shift in inflation, the central bank decided to maintain the key policy rate at 5% to allow existing rate cuts to impact the economy.

Several factors contributed to the fall in the headline inflation rate, including a reduction in the Goods and Services Tax (GST), a favorable base effect, and decreases in the prices of essential commodities like oils, fats, vegetables, fruits, cereals, and transport services. According to RBI Governor Sanjay Malhotra, the significant 50-basis-point rate cut implemented in June has yet to fully permeate the economy. He noted that the decision to keep interest rates stable was unanimous among committee members.

While current inflation rates are low, concerns linger about potential growth deceleration in the second half of fiscal year 2026 due to global trade uncertainties. Analysts predict that inflation is likely to rise again, potentially stabilizing around 4% for fiscal year 2026. According to Anubhuti Sahay, head of India economic research at Standard Chartered, there is no immediate need for a rate cut during the upcoming monetary policy committee meeting in December, given the current growth levels and the ongoing effects of previous rate cuts.

In addition to internal economic adjustments, external pressures have also impacted India’s economy. The United States recently imposed an additional 25% tariff on Indian imports, especially affecting labor-intensive sectors such as textiles, gems and jewelry, and marine products. Although exports to the U.S. represent a modest 2% of India’s GDP, ongoing weakness in these sectors could result in job losses and hinder overall economic growth.

To mitigate these challenges, the Indian government lowered the GST on various consumer goods on September 22, aiming to bolster domestic demand during the festive season. The auto and jewelry sectors reported strong performance, while demand levels for footwear, paints, fast-moving consumer goods, and textiles have seen a mixed response, as noted by Indian brokerage Motilal Oswal in a recent report.

In conclusion, India's consumer inflation has shown a substantial decline, raising expectations for potential monetary easing by the RBI. However, concerns about external tariffs and economic growth present ongoing challenges as policymakers navigate the evolving economic landscape.