Will easing inflation pave the way for more rate c

ARPIT KUMAR GUPTA

16-07-2025

LUCKNOW

Will easing inflation pave the way for more rate c

The easing of India’s retail inflation to a 77-month low in June has sparked speculation among economists and experts of another rate cut. It could open the door to rate cuts by the Reserve Bank of India (RBI) as early as the upcoming August monetary policy.

So far, the central bank has reduced repo or the benchmark rate by 100 basis points (Bps) since February to aid growth, with 25 bps each in February and April respectively, and 50 bps in the June policy.

Here is an explainer on the factors the RBI might consider while taking a call on rates in the August policy.

What will change on the inflation front in the August policy?

After the Consumer Price Index (CPI) inflation fell further in June, the Q1FY26 CPI inflation reached 2.7 percent, 20 bps lower than the RBI’s estimate of 2.9 percent.

Economists tracking July headline inflation estimate that inflation may further be pushed down to a sub-2 percent number (1.8-1.9 percent), with prices of cereals, pulses, and fruits easing further. This will allow the RBI to revise downwards its forecast on inflation for the upcoming quarters in the August policy.

Aditi Nayar, Chief Economist at ICRA said Q2FY26 (she expects) inflation print to materially undershoot the MPC’s current forecast of 3.4 percent amid the benign outlook for July 2025 (1.9 percent), which is likely to prompt the MPC to cut its FY26 CPI inflation projections further from the current 3.7 percent.