Lower inflation, reduced interest rates to extend broader support to India's domestic demand

New Delhi, Sep 13 Lower headline inflation and reduced interest rates are set to extend broader support to domestic demand in the economy amidst global headwinds, a report has said.

The headline inflation is now projected at 3.2 per cent in fiscal 2026, down from the earlier estimate of 3.5 per cent. This results in a 140 basis points (1.4 percentage points) decline in CPI inflation for this fiscal year, according to the report from ratings agency Crisil.

"This sharp moderation implies a sizeable 140 basis points (bps) decline in CPI inflation this fiscal, opening space for monetary easing. We believe the RBI will cut rates by another 25-bps this year," the report added.

India’s consumer price index (CPI)-based inflation increased marginally to 2.1 per cent in August, up from 1.6 per cent in July, surpassing the Reserve Bank of India’s (RBI) lower tolerance band of 2 per cent, according to official data.

Food inflation has started to move up from very low levels, with a statistical low-base effect also coming into play, the report said. Food deflation eased to -0.7 per cent in August, improving from -1.8 per cent in July.

The report, however, cautioned that excessive rains could pose risks to kharif crops, potentially making an impact on food prices.

The ratings agency also noted that non-food inflation stayed benign or expected to remain low or soften further, supported by lower oil prices and softening core inflation due to GST rate cuts.

Fuel inflation decreased to 2.4 per cent from 2.7 per cent, driven by lower prices for kerosene, electricity, and firewood. Core inflation increased to 4.2 per cent from 4.1 per cent, influenced by global gold price hikes, while inflation in the health and education sectors declined.

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