India’s inflation rate accelerated but stayed below the Reserve Bank of India’s tolerance band, leaving the door ajar for a repo rate cut next month.
The consumer price index, a measure of retail inflation in the Indian economy, rose 1.33% from a year earlier, according to data released by the Union Ministry of Statistics and Program Implementation on Monday (12 January 2026). That compares with the Bloomberg estimate of 1.56% and 0.71% in November.
“The inflationary trend remains fairly benign, creating room for the last rate cut in the upcoming policy,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said. That decision will be a “very close call” as the government is set to revamp its inflation and GDP data by end-February, she said.
- India’s food inflation fell 2.71% in December vs 3.91% decline in November.
- Vegetable prices fell 18.47% in December vs 22.24% decline in November.
- Prices of pulses fell 15.09% from a decline of 15.82% in the same period.
India’s core inflation rate, which excludes food and fuel, remained sticky at 4.73% in December, as against 4.42% in November.
“A persistently low inflation rate points to underlying slack in the economy and supports the possibility of further rate cuts if growth parameters warrant,” said Ankita Pathak, head – global investments at Ionic Asset by Angel One. “A modest, demand-led uptick in inflation would be constructive in reviving nominal growth momentum.”
RBI Monetary Policy & Inflation
The RBI cut its repo rate to a three-year low of 5.25% to keep Indian economy in a rare Goldilocks zone of benign inflation and high growth. The monetary policy stance was retained at neutral—meaning, there is scope of another cut.
“Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience,” RBI Governor Sanjay Malhotra had said in his policy speech on 5 December 2026. “The headroom provided by the inflation outlook has allowed us to remain growth supportive.”
The central bank sees India’s inflation rate at 2% and GDP growth rate at 7.3% for the financial year ending 31 March 2026.
Instead of a rate cut, the RBI may also focus on supplying liquidity, “to enable transmission of past rate cuts”, Sakshi Gupta, economist with HDFC Bank Ltd., told Bloomberg News.
Overall, the RBI expects inflation to stay comfortably below its 4% target until at least September. A scheduled review of its mandate in March may see the government retain the current 2% to 6% target band for another five years.
