New Delhi: Inflation is less of a worry this fiscal, with GST rate cuts and low crude prices likely to keep prices in check, according to a Crisil report, which predicts that the initiation of the US Federal Reserve’s (Fed’s) rate cuts has also added space for the RBI to cut rates. The Fed cut policy rates by 25 bps rate in September.
S&P Global expects two more rate cuts of 25 bps each in the remainder of calendar year 2025 and “we expect one more rate cut by the RBI in the current fiscal,” the report mentioned. GST is likely to bring a one-off relief to inflation, depending on when producers pass through the cuts to consumer prices. GST has been cut for a wide range of food and non-food items, likely leading to a broad-based easing of inflation.
Food inflation could face risks from excess rains in major kharif crop producing states, and its impact is yet to be ascertained. 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, said the report. “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 report noted. While GST cuts will increase household purchasing power, the actual impact it will depend on when producers pass through tax cuts to consumers. “Overall, we expect the impact of GST rate cuts on consumption to play out over this fiscal and the next,” the report mentioned.
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