India’s inflation seen easing to 2.1 per cent in FY26 as food prices ease; RBI rate cut likely

India’s retail inflation is expected to average 2.1 per cent in the ongoing financial year (FY26), its lowest level in nearly a decade, as food prices remain subdued and demand pressures stay contained, according to a report by CareEdge Ratings. The benign inflation trend could pave the way for a rate cut by the Reserve Bank of India (RBI) later this fiscal if economic growth shows signs of slowing.

Inflation cools sharply amid stable food and fuel prices

The report highlights that food inflation - a key component of India’s consumer price index, has remained moderate throughout the year, supported by a good harvest, lower edible oil prices and easing supply-side bottlenecks. Demand has also been tempered, helping to keep headline inflation well below the RBI’s 4 per cent target.

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“From a monetary policy perspective, if growth weakens in H2 FY26, the latest inflation readings could create scope for a rate cut,” CareEdge said. It added that the current inflation path suggests macroeconomic stability, offering the central bank flexibility in its policy stance.

Rupee steady as global trade outlook softens

CareEdge has retained its forecast for the rupee at Rs 85–87 per US dollar by the end of FY26, citing a softer dollar, a firm Chinese yuan and a manageable current account deficit. Expectations around a potential India–US trade deal are also contributing to optimism about the currency’s stability.

Globally, trade volumes are projected to expand by 2.9 per cent in 2025-26, indicating modest recovery momentum. However, India’s exports of goods and services are expected to moderate to around 16 per cent of GDP by 2030, down from 21 per cent currently, as trade patterns evolve and protectionism rises.

India–US trade strengthens despite mixed global signals

India’s non-petroleum exports rose 7 per cent in the first half of FY26, even as petroleum shipments weighed on overall export growth. Imports grew by 4.5 per cent during the same period, driven largely by non-petroleum goods.

The United States remains India’s top export market, accounting for about 20 per cent of the country’s total merchandise exports. Exports to the US increased 13 per cent in H1 FY26, though the report noted a contraction across most other commodity groups except electronics and petroleum products in September.

What could shape RBI’s next policy move?

With inflation well below the central bank’s target, the RBI may find room to adjust its policy stance if growth momentum eases. While the central bank has so far prioritised stability, analysts believe a shift towards easing could occur in early 2026 if demand conditions weaken and inflation stays anchored.