India's FY26 retail inflation expected at 2.4-2.5%; likely to undershoot RBI's 2.6% target: BoB report

New Delhi [India], November 12 : India's retail inflation is expected to undershoot RBI's target (2.6 per cent) in the current fiscal 2025-26, Bank of Baroda said in a report on Wednesday, as the country's Consumer Price Index reported a record low in October.

Dipanwita Mazumdar, a Bank of Baroda Economist, said they forecast CPI inflation for the year at 2.4-2.5 per cent, "with risks tilted to the downside".

However, one needs to be watchful of the unseasonal rains in major (Tomato, Onion and Potato) TOP-producing states, the economist cautioned.

"The arrival statistics till date haven't reflected any strain of the same," the report read.

CPI inflation is at 0.3 per cent for October 2025 compared to 6.2 per cent in October 2024, on a year-on-year basis.

The below 4 per cent headline inflation is now at its 9-month stretch, she said.

"This is comforting from the monetary policy standpoint," the Bank of Baroda Economist noted.

The outlook for food inflation seems favourable at the current juncture, with supply dynamics remaining in favour.

However, there might be some correction in the deflation trajectory in the coming months with unseasonal rains hitting major Tomato, Onion and Potato (TOP) producing States such as Maharashtra and Gujarat, Mazumdar noted.

Headline CPI continued to create space for monetary policy easing, she said, hinting at a way forward.

"CPI excluding vegetables is also running at its lowest since Sep-19. However, at this current juncture, monetary policy decision is expected to be contingent on the extent of transmission by banks," the report read.

On the inflation front, albeit having the space, Bank of Baroda expects RBI will be more watchful of the evolution of Q4 inflation print before taking any call on policy rate action.

The impact of the reduction in GST was visible across all sectors, the government today said, releasing the October CPI data. The decline in headline inflation and food inflation during the month of October, 2025 is mainly attributed to full month's impact of decrease in GST, favorable base effect and to drop in inflation of oils and fats, vegetables, fruits, egg, footwear, cereals and products, transport and communication etc, Ministry of Statistics and Programme Implementation (MoSPI) said in a statement.

Inflation has been a concern for many countries, including advanced economies; however, India has managed to steer its inflation trajectory in a favourable direction. The RBI held its benchmark repo rate steady at 6.5 per cent for the eleventh consecutive time, before cutting it for the first time in about five years in February 2025.

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