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GST cut to exert downward pressure on CPI inflation till Q2 FY27: ICRA

08 Dec '25

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GST cut to exert downward pressure on CPI inflation till Q2 FY27: ICRA

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The favourable impact of the cut in GST is expected to exert some downward pressure on the CPI inflation prints until Q2 FY27, ICRA Ratings said.
ICRA expects the central bank's rate cut cycle to have come to an end.
Any further rate easing would only be likely if there is a material downward undershooting in growth outcomes, which leads to a cut in growth projections.

The favourable impact of the cut in goods and services tax (GST) is expected to exert some downward pressure on the consumer price index (CPI)-based inflation prints until the second quarter (Q2) of fiscal 2026-27 (FY27), according to ICRA Ratings.

Overall, while the tone of the Reserve Bank of India’s (RBI) latest monetary policy document was benign, ICRA expects the rate cut cycle to have come to an end. Any further rate easing would only be likely if there is a material downward undershooting in growth outcomes, which leads to a cut in growth projections.

The RBI’s monetary policy committee (MPC) eased repo rate by 25 basis points (bps) to 5.25 per cent in December this year, notwithstanding dovish policy tone.

In ICRA’s view, the downward revision in the MPC’s quarterly CPI inflation projections is largely along expected lines.

However, some of the decline in inflation in October 2025 has stemmed from tax policy changes, owing to the GST rate cuts across several items in the CPI basket, which has led to the cooling in the core CPI excluding gold in that month.

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