Context
Minutes of the Monetary Policy Committee highlight concern that inflation has fallen too low, breaching the lower bound of the inflation target and signalling weak demand conditions in the economy.
Summary
• Data: Headline inflation declined to 0.3% (Oct 2025), mainly due to falling food prices; expected to remain below target for months.
• Why concern: Persistently low inflation reflects a demand deficit, not economic strength.
Impact
• Profit squeeze: Firms cannot raise prices while costs remain sticky, compressing margins.
• Higher real debt: Low inflation increases the real value of repayments, making borrowing costlier.
• Lower investment: Reduced profits and higher real debt discourage private investment, especially MSMEs with thin margins.
Outlook
• Average inflation projected at ~2% in 2025–26.
