The Reserve Bank of India (RBI) is in a tricky spot. Inflation is cooling, and fast. In June, India’s consumer price inflation (CPI) dropped to just 2.1 percent — the lowest in 78 months. That’s mainly because food prices, especially vegetables, are falling.
For the April-June quarter, headline inflation came in at 2.7 percent. That’s lower than the RBI’s forecast of 2.9 percent. This drop isn’t just a one-time dip. Experts believe it’s part of a longer trend of falling inflation.
So what does this mean for RBI?
Will it go for more rate cuts?
Not so fast.
While CPI is softening, core inflation is going up. Core inflation, which removes food and fuel prices, touched 4.3 percent in June. That’s because of a base effect and rising gold prices. Also, services and personal care costs are still high.
This means that while headline inflation looks good, the hidden pressures remain.
Still, many believe the RBI will revise its FY26 inflation forecast lower. Japan’s Nomura says inflation could average just 2.8 percent — much lower than RBI’s own forecast of 3.7 percent. Emkay Global expects even 2.9 percent. They believe the RBI will update its forecast in the August meeting.
So, is a rate cut coming soon?
RBI surprised everyone in the last policy meet by cutting the repo rate by 50 basis points and also reduced the cash reserve ratio (CRR) in four steps. That was bold. But this time, it may not move that quickly.
The central bank still sees risk. Growth is slow. Core inflation is sticky. And the real interest rate — the difference between inflation and the repo rate — is high at 2.6 percent. That’s above the neutral level of 1.65 percent, which could be hurting the economy.
Experts say the RBI might wait and watch global markets. If things stay calm, a small 25 basis points rate cut could happen in October or December. But a big cut in August looks unlikely.
Centrum Broking warns that even if headline inflation stays low, the RBI will stay careful. Any global shock, like a tariff fight or war, could change the picture fast. That’s why the easing path will be slow and steady.
In short, RBI may lower its inflation view, but don’t expect a rate-cut party just yet.
Disclaimer:
This article is for informational purposes only and is not financial advice. Please consult a certified advisor before making investment decisions.
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