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Below the Views on India: November inflation likely picked up but is still subdued by Magdalene Teo, Fixed Income Analyst Asia, Julius Baer

India’s November inflation is likely to see a modest rise but stay subdued, prompting the RBI to lower its FY 2026 forecast. With the inflation outlook benign, the RBI cut rates by 25bps last week to further support growth, which is expected to slow in H2 FY 2026 from the pace seen in H1 as trade uncertainties linger. While the RBI left the door open for further easing, it will be data-dependent and is likely to focus on policy transmission and liquidity measures. It could pause on rates at its February meeting unless inflation moves lower.

India’s inflation in November (due to be released on 12 December) is likely to see a modest increase after reaching a multi-year low of 0.25% y/y in October as favourable base effects fade and food prices broadly pick up (except in segments such as cereal, sugar, and edible oils) on seasonal demand. Despite an expected increase, inflation is seen to remain subdued in November, with economists’ forecasts ranging from -0.1% to 1.3%, which is still below the Reserve Bank of India’s (RBI) 4% target. Given a benign inflation outlook, last Friday the RBI lowered its policy rate by 25bps, its first cut in six months, in a unanimous vote by the monetary policy committee (MPC) and maintained its neutral policy stance. The rate decision was a close call, as India’s GDP data for the second quarter ending September (Q2 FY 2026) came in much stronger than expected at 8.2% y/y and the INR had weakened beyond the key psychological level of 90 per USD on 3 December ahead of the MPC meeting. The RBI views the current macro conditions as a ‘rare Goldilocks period’ with high growth and low inflation, which gave policymakers scope to ease to further support growth. While H1 FY 2026 growth has been resilient, the RBI flagged weakness showing up in some key economic indicators, with industrial output, PMI, and net exports declines reflecting slowing momentum as the higher tariffs (50% tariff on India’s exports to the US since August) weigh on demand. India and the US have yet to finalise a trade deal, with negotiations still ongoing. Given trade uncertainties, H2 FY 2026 growth could slow from the pace seen in H1 FY 2026. Nevertheless, on account of a strong H1 FY 2026, the RBI raised its FY 2026 growth forecast to 7.3% y/y (from 6.3%), while lowering its inflation forecast to just 2% from 2.6%. The RBI also announced measures to boost banking sector liquidity by up to USD16bn through bond purchases and a foreign exchange swap. The RBI has left the door open for further easing, saying that the growth/inflation balance (particularly the subdued inflation outlook) continues to provide policy space to support growth momentum. Indian government bond (IGB) yields initially moved lower after the RBI’s rate cut but later rose on fears that this could be the central bank’s last rate cut in this easing cycle.

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