India’s Retail Inflation Hits Six-Year Low at 3.16% in April, Fuelling Rate Cut Hopes

India's annual retail inflation based on the consumer price index (CPI) eased to 3.16% in April, nearly a six-year low, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Wednesday. The headline inflation of April 2025 declined 18 basis points(bps) compared to March 2025. It is the lowest year-on-year inflation since July 2019.

"The significant decline in headline inflation and food inflation during the month of April, 2025 is mainly attributed to decline in inflation of Vegetables, Pulses & Products, Fruits, Meat and fish, Personal care and effects and Cereals and Products," the MoSPI stated.

Food inflation eased to 1.78% in April from 2.69% in the previous month. Vegetable prices fell 11% year-on-year, compared to a 7.04% fall in March.

Prices of cereals rose 5.35% against a 5.93% increase in March, while those of pulses fell 5.23% compared to a 2.73% fall in the same period.

Sankar Chakraborti, MD and CEO at Acuité Ratings & Research noted that while the cooling in food inflation presents cautious optimism, non-food inflationary pressures suggest broader inflationary risks remain a challenge. "Non-food inflation will likely be driven mainly by higher gold prices, given the ongoing geopolitical tensions as well as concerns over the performance of the US, leading to more safe-haven buying," he added.

Aditi Nayar, chief economist at ICRA, projects that the CPI inflation in the ongoing month to print around 3.5% in the ongoing month. She attributed this spike to the recent rise in temperatures in North India and unseasonal rainfall in parts of peninsular India, causing a rise in vegetable prices in the second half of May.

Another Rate Cut in June

Easing inflation has fueled the hope for another rate cut as the Reserve Bank of India's (RBI) Monetary Policy Committee is scheduled to meet in June.

"With inflation firmly below the RBI’s 4.0% target in the immediate future, we believe there is ample space for the RBI to focus on addressing growth concerns. Hence, we expect a terminal repo rate of 5.00%, which implies an additional 100bp in rate cuts by end-2025 (25bp in each of the consecutive meetings in June, August, October, and December)," says Sonal Varma, chief economist (India and Asia ex-Japan) at Nomura.

Chakraborti also expects that the central bank will cut the repo rate by an additional 50 bps cumulatively in the coming months.

Echoing the same sentiment, Nayar also sees a 25 bps rate cut in the June 2025 policy, followed by easing of 25 bps each in the August and October 2025 policy reviews.

"If the GDP growth print for Q4 FY2025 does not report an acceleration from the 6.2% seen for Q3 FY2025, the MPC may consider frontloading the rate easing, with a 50 bps cut in the upcoming review," Nayar adds.