India’s CPI Plunges to 0.25%: What This Record Drop Means for the RBI and Your Investments

Key Takeaways

• CPI inflation drops to 0.25% in October 2025 — the lowest since the 2012 base series began.
• Food deflation and base effects are key drivers behind the fall.
• Economists expect a 25 bps repo rate cut at the RBI’s December MPC meeting.
• Markets have rallied on the news, anticipating easier liquidity and lower borrowing costs.
• But the RBI may still hold off if growth momentum or core inflation remain uncertain.

India’s Record-Low CPI Explained

India’s consumer price index (CPI) inflation tumbled to 0.25% year-on-year in October 2025, marking a historic low since the current series began in 2012. This dramatic decline has surprised both economists and policymakers.

The primary driver? A steep fall in food prices — vegetable and pulses prices dropped by more than 25% year-on-year, while edible oils and cereals saw broad moderation. The government’s supply-side interventions, better monsoon output, and easing global commodity prices all contributed to this cooling trend.

At the same time, core inflation (excluding food and fuel) held around 4.2–4.4%, indicating that services and housing costs remain sticky. This divergence makes the RBI’s next move more complex than the headline number might suggest.

Why the RBI’s Next Move Is Crucial

The Reserve Bank of India (RBI) has maintained its repo rate at 5.50% since June 2024, adopting a “wait and watch” stance as inflation steadily declined from its 4–6% corridor.

Now, with CPI far below the RBI’s lower tolerance limit (2%), the pressure is mounting for a rate cut in the upcoming December 2025 Monetary Policy Committee (MPC) meeting.

Why the RBI Might Cut the Repo Rate

1. Inflation well below target: At 0.25%, inflation is not just low — it’s dangerously close to deflation. The RBI may want to preempt a slowdown.
2. Boost to growth: Lower borrowing costs could help support private investment and credit demand.
3. Fiscal-monetary coordination: With the government pushing infrastructure and consumption growth, an accommodative stance complements fiscal policy.
4. Global context: The US Fed and other central banks have already shifted toward easing; India may follow suit.

Why the RBI Might Still Wait

1. Base effect distortion: The low print could be temporary, influenced by last year’s high base and one-off declines in perishables.
2. Sticky core inflation: Non-food prices remain elevated, suggesting domestic demand is still strong.
3. Imported inflation risk: Any rebound in crude oil or global commodity prices could quickly reverse the trend.
4. Financial stability: The RBI may prefer to confirm the disinflation trend before loosening policy too soon.

So, while the probability of a rate cut is high, it’s not guaranteed.

Impact on Indian Markets and Your Investments

The markets have already started reacting to the inflation surprise. Let’s break down how different asset classes might behave if the RBI does move to ease policy.

1. Equity Markets

Low inflation and potential rate cuts generally support stock valuations, as lower interest rates reduce the cost of capital.

• Rate-sensitive sectors like banking, real estate, and auto are likely to see renewed investor interest.
• Exporters may also benefit if a rate cut weakens the rupee slightly, improving competitiveness.
  However, if inflation stays too low due to weak demand, earnings growth could be under pressure — so investors should stay selective.

2. Debt Markets

Bond yields have already started falling in anticipation of a rate cut. A 25–50 bps repo rate reduction could boost long-duration bond prices significantly.
Investors with exposure to gilt funds or long-term debt funds may gain in the near term.

3. Currency Outlook

A softer interest-rate environment could lead to a mild rupee depreciation, especially if global investors chase higher yields elsewhere. However, strong foreign inflows into Indian equities might offset this effect.

4. Households and Borrowers

If the repo rate is cut, EMIs on home, auto, and personal loans could decline marginally, boosting disposable income. Lower borrowing costs could also reignite demand in consumer goods and real estate.

Real-World Context: Lessons from the Past

This isn’t the first time India has faced ultra-low inflation. In 2018, CPI briefly dipped below 3%, prompting an accommodative shift by the RBI in early 2019. However, that easing cycle was short-lived when food and fuel inflation resurfaced.

The takeaway? One low print doesn’t make a trend. Investors should track inflation momentum over the next 2–3 months before making aggressive portfolio changes.

Moreover, this CPI crash also reflects a base effect and food deflation, not necessarily a structural moderation in core prices. Hence, the central bank will aim to ensure that inflation remains sustainably within its 4% midpoint target before loosening too much.

The Broader Economic Picture

India’s GDP growth remains robust at around 6.8% (FY25 projection), supported by strong infrastructure spending and recovering private consumption. Yet, rural demand and export performance are uneven.

Thus, if the RBI does choose to cut rates, it would likely be a calibrated move—aimed at supporting growth while ensuring inflation expectations stay anchored.

Globally, too, the monetary landscape is shifting. The US Federal Reserve and European Central Bank have both paused rate hikes, with markets betting on cuts in early 2026. India’s moderation aligns with this global trend, potentially enhancing capital inflows.

What Should Investors Do Now?

1. Stay diversified: Balance exposure across equities, debt, and gold to manage macro volatility.
2. Reassess fixed income: This may be a good time to consider long-duration bond funds or gilt funds as yields fall.
3. Focus on fundamentals: In equities, prefer companies with strong earnings visibility, low leverage, and pricing power.
4. Use expert guidance: Macro shifts like these can be tricky. Partnering with research-backed platforms like Swastika Investmart, a SEBI-registered broker, can help you interpret data and take timely action.
5. Don’t chase short-term momentum: Wait for the December MPC clarity before making aggressive portfolio moves.

FAQs

Q1. Why did India’s CPI inflation fall to 0.25%?
Mainly due to a steep fall in food prices and favourable base effects from last year’s high inflation readings.

Q2. Will the RBI definitely cut rates in December?
Not necessarily. While odds of a rate cut are high, the RBI will evaluate growth data, core inflation, and global developments before deciding.

Q3. How does low inflation impact investors?
It generally boosts equity and bond markets by reducing borrowing costs, but may also signal weak demand if sustained too long.

Q4. Which sectors benefit most from a rate cut?
Banks, autos, real estate, and capital-intensive sectors tend to gain from lower rates.

Q5. How can I prepare my portfolio for this changing environment?
Diversify investments, focus on quality stocks, and consider fixed-income exposure. Consulting with Swastika Investmart’s research team can help tailor your strategy.

Conclusion

India’s CPI falling to 0.25% is a landmark moment — one that could reshape the country’s monetary outlook. The dramatic disinflation gives the RBI breathing room to support growth, but the December MPC decision is not a foregone conclusion.

For investors, this environment presents both opportunity and caution. Lower rates could buoy markets, yet sustained disinflation might also signal slower demand.

Whether you’re a seasoned investor or just starting out, staying informed and strategic is key.

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