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RBI May Cut Rates in Feb/Apr as Inflation Dips Below Forecast: Report

A report by Union Bank of India projects Consumer Price Index (CPI) inflation for Q4FY26 at 2.6%, which is lower than the Reserve Bank of India's forecast of 2.9%. It maintains the view that a final 25 basis point repo rate cut is possible in February or April 2026, potentially bringing the rate to 5.0%. The report notes that inflation in December 2025 firmed to 1.33%, though it remained below 2% for the fourth consecutive month. Key risks to the outlook include global commodity prices, domestic food inflation, and weather-related uncertainties.

Key Points: Q4FY26 Inflation at 2.6%, Rate Cut Possible: Union Bank Report

  • Q4FY26 inflation seen at 2.6%
  • Below RBI's 2.9% projection
  • Final 25 bps rate cut possible in Feb/Apr 2026
  • December 2025 CPI inflation at 1.33%
  • Risks from food prices and global commodities
2 min read

Consumer inflation in Q4FY26 likely at 2.6% below RBI forecast, 25 bps rate cut possible in Feb or April: Report

Union Bank report projects Q4FY26 CPI inflation at 2.6%, below RBI's forecast, suggesting a possible 25 bps rate cut in February or April 2026.

"We hold on to our view of the possibility of a final 25 bps rate cut in February or April 2026 - Union Bank of India Report"

New Delhi, January 13

Consumer inflation for the fourth quarter of the current financial year FY26 is expected to remain at 2.6 per cent, which is below the Reserve Bank of India's projection of 2.9 per cent, as highlighted in a report by Union Bank of India.

The report also maintained its view that there is a possibility of a final 25 basis points rate cut in February or April 2026, which could take the repo rate to 5.0 per cent.

It stated "Our CPI projection for Q4FY26 is tracking at 2.6 per cent, lower than RBI's projection of 2.9 per cent...... We hold on to our view of the possibility of a final 25 bps rate cut in February or April 2026".

According to the report, Consumer Price Index (CPI) projection for Q4FY26 is tracking lower than the central bank's estimate. Looking ahead to FY27, while the Monetary Policy Committee (MPC) has projected CPI inflation of 3.9 per cent in Q1 and 4.0 per cent in Q2, the bank's estimates are slightly lower at 3.4 per cent and 3.6 per cent, respectively.

The report noted that risks to the CPI outlook continue to be closely monitored. These include movements in global commodity prices, particularly metals, domestic food price dynamics and weather-related uncertainties.

Despite these risks, the bank reiterated its expectation of a possible final 25 bps rate cut, while acknowledging that the timing of the last rate cut is usually difficult to predict.

On recent inflation trends, the report stated that CPI inflation in December 2025 continued to firm, printing at 1.33 per cent compared with 0.71 per cent in November. While the inflation rate crossed the 1 per cent mark, it remained below 2 per cent for the fourth consecutive month.

The December print was significantly lower than the bank's estimate of 1.66 per cent, while the consensus stood at 1.50 per cent.

Going forward, the report said the January 2026 CPI print is tracking at around 2.3 per cent, adding that the change in the base year and its impact on CPI inflation dynamics will be closely watched.

- ANI

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Reader Comments

R
Rohit P
Good to see inflation under control, but I'll believe the rate cut when I see it. The RBI is usually very cautious. Also, these projections for FY27 show it might creep up again. The real test is managing food prices during the monsoon.
A
Aman W
As a small business owner, a rate cut would be a huge boost. Lower borrowing costs can help us invest and hire more. The government and RBI seem to be managing the economy well. Hope the global commodity prices don't spoil the party.
S
Sarah B
The report is optimistic, but respectfully, I think we should be cautious. A 2.6% projection is great, but with "weather-related uncertainties" mentioned, one bad crop season and vegetable prices can skyrocket again. Stability is key.
V
Vikram M
Finally some positive news on the economic front! If inflation stays low and rates come down, it could really spur investment. The Sensex might react positively to this. Good for long-term investors like me.
K
Kavya N
My main concern is for fixed deposit holders and senior citizens. If rates are cut further, where will we get safe returns? Inflation may be low, but our interest income is also shrinking. It's a double-edged sword.

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