The consumer price index (CPI), which measures retail inflation in India, decreased from 3.61% in February to 3.34% in March, a five-year-seven-month low, as food costs significantly decreased. Analysts believe that this will allow the RBI to stimulate growth by reducing interest rates by at least 50 basis points in FY26.
In the face of persistently weak urban spending and concerns about the negative effects of the global tariff war on aggregate demand, the economy is encouraged by the lower-than-expected inflation figure. Consumption is projected to temporarily increase as a result of the budget’s income tax cuts and the ongoing monetary transmission that has many major banks lowering their lending and certain fixed deposit rates.
However, core inflation remained stable at 4.1% in March, slightly higher than 4% in February. In reality, since December 2024, the independent experts’ sub-index for non-food, non-manufactured products has been rising, with more pronounced annual increases. Core inflation is a more accurate indicator of domestic demand since it does not include volatile goods like food and energy.
Food inflation in March 2025 was 106 basis points lower than in February 2025, according to statistics issued by the National Statistical Office (NSO) on Wednesday. The lowest rate of food inflation since November 2021 was 2.69% in March 2025.
The Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 6% on April 9, bringing the total reduction from the previous two MPC meetings to 50 bps. Additionally, the MPC reduced its inflation forecast for FY26 by 20 basis points to 4% and changed its stance from “neutral” to “accommodative.”
The RBI has lowered its real GDP growth forecast for FY26 by 20 basis points to 6.5% in light of the increased uncertainty brought on by the tariff war.
“Our most recent survey’s sharp drop in inflation expectations for the next three months and a year would also help anchor inflation expectations moving forward.” Additionally, the RBI governor stated on April 9 that the decline in crude oil prices bodes favorably for the inflation outlook.
