India’s new CPI series, using 2024 as the base year, put January inflation at 2.8% year-on-year. Under the old series with a 2014 base year, December inflation was 1.3%.
The 2.8% reading places inflation within the Reserve Bank of India’s 2–6% target band. It is stated to be the first time inflation has been in that range since August 2025.
Inflation Back In Target Band
The CPI basket has been reweighted to lower the share of food. This change is expected to reduce volatility and limit sharp swings linked to weather-driven food prices.
With inflation expected to stay contained in the near term, the RBI is expected to hold the policy rate at 5.25%. The next policy meeting is scheduled for 8 April.
The report also links the outlook to growth support from fiscal policy and trade deals. The article notes it was produced using an AI tool and reviewed by an editor.
With the new CPI series showing January inflation at just 2.8%, we are now back within the Reserve Bank of India’s target band for the first time since that brief spike we saw back in August 2025. This reinforces our view that the RBI will keep the policy rate steady at 5.25% in its upcoming April meeting. This suggests a period of calm for interest rate markets.
Market Volatility And Options Setup
The new inflation calculation gives less weight to volatile food prices, which should help keep inflation numbers more stable going forward. For us, this points to lower implied volatility, a view supported by the India VIX index recently trading in a subdued range around 14. This environment could make strategies that benefit from stable markets, like selling options premium on the Nifty 50, more appealing in the coming weeks.
This stable inflation and predictable central bank policy is also a positive for the currency. We have seen the USD/INR pair trade in a tight range between 83.10 and 83.60 for much of the last quarter, and this news supports a continuation of that trend. Derivative positions that profit from the Rupee staying within a specific range, such as iron condors, could be a sensible approach.
The expectation of a steady policy rate also removes any immediate upward pressure on government bond yields. We’ve seen the 10-year government bond yield hold steady around 7.10% since the start of the year. This report gives us little reason to bet on a sudden spike in yields, making large short positions in bond futures seem risky.
