Lower inflation, reduced interest rates to extend broader support to India’s domestic demand
India’s economy is getting a boost as lower inflation and cheaper interest rates fuel domestic demand, even with global challenges in the mix. A new report from ratings agency Crisil highlights how these positive shifts could help everyday spending and growth.
Crisil now forecasts headline inflation at just 3.2 percent for fiscal 2026, a drop from the previous 3.5 percent estimate. This means CPI inflation could fall by a solid 1.4 percentage points this fiscal year, creating room for the Reserve Bank of India (RBI) to ease monetary policy. “This big drop in CPI inflation opens the door for rate cuts,” the report states. Experts predict the RBI will slash rates by another 25 basis points before the year ends.
Recent data shows India’s CPI inflation ticked up slightly to 2.1 percent in August from 1.6 percent in July. It crossed the RBI’s lower tolerance limit of 2 percent, but things still look manageable. Food inflation, which had been rock-bottom, is starting to climb a bit due to a low base effect from last year. Food deflation softened to -0.7 percent in August, better than -1.8 percent in July.
That said, the report warns of potential hiccups. Heavy rains this season might damage kharif crops, which could push food prices higher and stir up inflation again.
On a brighter note, non-food inflation remains tame and could ease even more. Lower global oil prices and recent GST rate reductions are keeping core inflation in check. Fuel inflation dipped to 2.4 percent from 2.7 percent, thanks to cheaper kerosene, electricity, and firewood. Core inflation edged up to 4.2 percent from 4.1 percent, mainly because of rising international gold prices. Meanwhile, inflation in health and education sectors has cooled off.
Overall, these trends point to a supportive environment for India’s economy, with RBI rate cuts and controlled inflation helping domestic demand thrive amid global uncertainties.
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