Inflation is expected to be less of a concern this fiscal year, as GST rate cuts and lower crude oil prices are likely to help keep it under control. The US Federal Reserve’s move to begin cutting has created additional room for the RBI to ease its monetary policy, IANS cited Crisil report.
The US Federal Reserve lowered its policy rates by 25 basis points in September. S&P Global expects two additional rate cuts of a similar magnitude are likely over the remainder of calendar year 2025 and reflecting this global monetary easing, the report also anticipates that the Reserve Bank of India (RBI) could implement one more rate cut in the current fiscal.
GST is likely to bring a one-off relief to inflation, depending on when the producers pass through the cuts to customer prices. GST reductions across a broad range of food and non-food items are expected to contribute to a wider easing of inflation.
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Due to excess rain, major states producing kharif crops are getting affected. Its impact is yet to ascertained and food inflation could face risks. Despite this, adequate reservoir levels bode well for rabi production. Overall, the RBI MPC expects CPI inflation at 2.6 per cent for this fiscal, compared with 3.1 per cent projected in August.
Low crude prices will further keep inflation in check. We expect Brent crude to average $62-67 per barrel this fiscal compared with average $78.8 per barrel in fiscal 2025.
“The MPC’s announcement has been contrary to our expectations of a rate cut this time. While the MPC seemed satisfied with growth so far, it may be saving its monetary policy space to act when the downside risks to growth play out. Benign inflation prospects keep the monetary space open for additional easing,” the IANS reported.
While the reduction in GST rates is expected to boost household purchasing power, the extent of the benefit will depend on how quickly producers pass on the tax cuts to consumers.
Overall, the positive impact of these rate cuts on consumption is likely to unfold gradually, spreading over the current fiscal and the next.
As per inputs from IANS
