India’s retail inflation fell to a six-year low of 3.16% in April 2025, marking the third consecutive month below the Reserve Bank of India’s (RBI) 4% target. With food prices rising sharply and inflation broadly cooling, the data strengthens the case for a potential repo rate cut in the upcoming June monetary policy review. However, global headwinds and domestic uncertainties remain crucial variables in the RBI’s decision-making process.
Key Event: April CPI Inflation Hits 3.16%
India’s consumer price index (CPI)-based retail inflation dropped to 3.16% in April, down from 3.34% in March, reaching its lowest level since July 2019. This marks the third consecutive month of inflation staying below the RBI’s medium-term 4% target, driven largely by a sharp deceleration in food prices.
- Food inflation eased to 1.78%, its lowest since October 2021.
- Rural inflation dropped to 2.92%, while urban inflation fell to 3.36%.
- Notable declines were seen in categories like vegetables, pulses, fruits, cereals, and personal care items.
The moderation in prices came despite intense heat waves, suggesting robust food supply conditions and resilient agricultural output, likely aided by good rabi crop performance and stock buffers.
RBI’s Policy Dilemma: Growth vs. External Risks
The declining inflation has bolstered market expectations of a 25-basis-point rate cut in June. The RBI has already reduced the repo rate by a cumulative 50 bps in its last two meetings, bringing it to 6.0% under new Governor Sanjay Malhotra. Analysts across the board, from Crisil to ICRA and Nuvama, suggest that inflation trends provide the central bank ample room for further easing.
However, the path ahead is not without complications:
- Geopolitical tensions and global trade uncertainties could feed into imported inflation.
- The rupee remains vulnerable, with depreciation risks linked to U.S. tariffs and a strong dollar.
- Gold and crude oil prices, though subdued recently, pose upside risk if geopolitical conditions worsen.
Given this backdrop, while the data supports an “accommodative” stance, the RBI must strike a balance between stimulating growth and safeguarding macroeconomic stability.
Outlook: June Rate Cut Likely, But Cautious Optimism Needed
The April inflation data has laid a solid foundation for a measured rate cut in the June policy meeting. A 25 bps reduction is now widely expected, with additional cuts in August and October also on the table if inflation remains within comfort zones.
Nevertheless, the RBI is unlikely to move aggressively, given the uncertain global outlook, potential risks to the rupee, and fiscal constraints. The May inflation data, expected to remain sub-4%, along with the Q4 FY25 GDP print, will be pivotal in determining the exact trajectory.
The door to a June rate cut is open—but it will be a carefully calibrated step, not a sprint toward aggressive monetary easing.
Disclaimer: This article is for informational purposes only and should not be considered investment advice.
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