Capital Economics: Decline in Inflation in India Opens Door for Further Interest Rate Cuts

Kathy Jones of Kathy Macro wrote that the latest CPI data from India has cleared the way for the Reserve Bank of India to resume its accommodative policy in December. Kathy Macro still expects that inflation will rise over the next year as base effects become unfavorable, but believes that due to strong monsoons, the inflation rebound will be gradual. This should continue to support agricultural output, and with the contribution of gold prices weakening, Kathy Macro believes that gold prices will begin to soften. Tandon said, "Given that inflation is not expected to return to the Reserve Bank of India's target level of 4% until 2027, the central bank has room to further ease policy." Kathy Macro expects that by early 2026, the policy rate of the Reserve Bank of India will be lowered from the current 5.50% to 5.00%.