CPI inflation in H2, FY26 may remain low making room for 25 basis points cut in repo rate this fiscal: EY
CPI inflation in H2, FY26 may remain low making room for 25 basis points cut in repo rate this fiscal: EY
EY projects CPI inflation in the second half of FY26 to remain around 2%, well below RBI’s 4% target range, driven by GST rate cuts and low crude oil prices. This could pave the way for a 25 basis point repo rate cut by RBI this fiscal, with monetary policy review scheduled in early December.
EY said CPI inflation may remain subdued, turning out to be even lower than the RBI expectations. It has projected H2, FY26 CPI inflation at 2%
Inflation may remain “quite low” in the second half of the current financial year, making room for an additional 25 basis point cut in the repo rate by the Reserve Bank of India (RBI) this year, said EY in its monthly economy watch for November.
“Available CPI inflation data for the first and second quarters of FY26 indicate an average inflation level of 2.7% and 1.7%, respectively. This is below the mean inflation rate of the RBI’s target range of 4%. The RBI has projected CPI inflation at 2.6% for FY26 with the 2HFY26 level at 2.9%,” the report said.
“We expect that there may be one more rate reduction of 25 basis points in this fiscal year. Moderate crude oil prices are also likely to keep India’s inflation low,” EY said.
GST reduction is also likely to keep inflation low in the economy. “With substantial reduction in the GST rates, CPI inflation in 2HFY26 may remain quite low. Part of the sharp reduction in the CPI inflation numbers in October 2025 is due to the negative inflation in consumer food price index at (-) 5.0%, which may partly reflect a base effect but also the impact of GST rate revisions which involved substantial reduction of rates for food items,” EY said.
“These effects are likely to continue for the remaining quarters and therefore, CPI inflation may remain subdued, turning out to be even lower than the RBI expectations. Our projection for 2HFY26 CPI inflation is 2%,” it added. It may be noted that RBI governor Sanjay Malhotra indicated in a recent interview to a media outlet that there is scope to further cut the policy interest rate. RBI monetary policy committee is scheduled to meet in the first week of December.
As per the World Bank Commodity Markets Outlook (October 2025), Brent oil price is projected to average US$68/bbl. In 2025, US$13 less than that in 2024. “This is forecasted to fall further to US$60/bbl. in 2026, as oil consumption growth continues to moderate and oil supply continues to rise, before increasing to US$65/bbl. in 2027. The price increase in 2027 reflects a projected rebalancing of the oil market, as low prices in 2026 curtail excess supply,” EY said.