April CPI Review: Soft Inflation Strengthens Case For RBI To Cut Rates Again In June, Say Analysts

India's retail inflation eased to 3.16% year-on-year in April 2025, its lowest in nearly six years, driven by a broad-based decline in food prices. Analysts expect this downward trend to continue into May, with estimates ranging from 2.8% to 3.3%, strengthening the case for further rate cuts by the Reserve Bank of India.

Food inflation fell to 2.1% in April, with vegetables, cereals, pulses, and eggs registering sharp declines. This drop came despite the usual seasonal uptick. A normal monsoon forecast for 2025 is expected to help maintain a stable food supply outlook, keeping price pressures subdued.

However, core inflation (excluding food and fuel) rose to 4.4% year-on-year, the highest in 19 months. This was mainly due to higher gold prices and housing costs. BofA and Emkay both highlight that this uptick was led by discretionary components like personal care and housing, but broader demand-side pressures remain muted. Citi noted that CPI excluding vegetables was at 4.1% year-on-year, showing some stickiness in underlying inflation, although largely attributable to global price dynamics.

For financial year 2026, most brokerages now forecast average CPI inflation around 3.7–3.8%, slightly lower than previous estimates. BofA has revised its forecast to 3.8% from 4.1%, citing lower food and energy prices and a stronger rupee. Citi maintained its 3.8% FY26 projection, while Emkay sees some downside risk if current trends continue, especially if the monsoon remains supportive and food prices stay subdued.

India's retail inflation eased to 3.16% year-on-year in April 2025, its lowest in nearly six years, driven by a broad-based decline in food prices. Analysts expect this downward trend to continue into May, with estimates ranging from 2.8% to 3.3%, strengthening the case for further rate cuts by the Reserve Bank of India.

Food inflation fell to 2.1% in April, with vegetables, cereals, pulses, and eggs registering sharp declines. This drop came despite the usual seasonal uptick. A normal monsoon forecast for 2025 is expected to help maintain a stable food supply outlook, keeping price pressures subdued.

However, core inflation (excluding food and fuel) rose to 4.4% year-on-year, the highest in 19 months. This was mainly due to higher gold prices and housing costs. BofA and Emkay both highlight that this uptick was led by discretionary components like personal care and housing, but broader demand-side pressures remain muted. Citi noted that CPI excluding vegetables was at 4.1% year-on-year, showing some stickiness in underlying inflation, although largely attributable to global price dynamics.

For financial year 2026, most brokerages now forecast average CPI inflation around 3.7–3.8%, slightly lower than previous estimates. BofA has revised its forecast to 3.8% from 4.1%, citing lower food and energy prices and a stronger rupee. Citi maintained its 3.8% FY26 projection, while Emkay sees some downside risk if current trends continue, especially if the monsoon remains supportive and food prices stay subdued.

On the core side, fiscal 2026 projections remain at 4.1–4.2%, although both Emkay and Citi acknowledge that the core could moderate if gold price volatility eases and domestic demand remains soft.

With inflation well within the RBI's comfort zone, expectations are growing for continued rate cuts. A 25 basis point cut in the June Monetary Policy Committee meeting is widely expected, taking the repo rate to 5.75%. BofA anticipates a total of 100 basis points in cuts during the easing cycle, including the 50 bps cut, bringing the rate to 5.5% by end-2025.

Citi expects the RBI to remain focused on liquidity management to ensure effective transmission, while Emkay points out that the RBI's strategy of maintaining surplus liquidity (~1% of NDTL) functions as a de facto rate cut, even in the absence of sharp changes in the policy rate.

However, all brokerages caution that global trade tensions, currency volatility, and the trajectory of U.S. Federal Reserve policy could influence RBI's easing path. A shallower Fed easing cycle or escalation in tariffs could lead to greater caution by the central bank.