India's Inflation Plunges: RBI Rate Cut More Likely

India's retail inflation has hit a six-year low, sparking discussions about potential rate cuts by the Reserve Bank of India (RBI). The Consumer Price Index (CPI) for June 2025 registered at 2.10%, a significant drop from 2.82% in May.

This decline, driven by lower food prices and favorable base effects, marks the fifth consecutive month that inflation has remained below the RBI's 4% target. The central bank may now have room to further ease monetary policy to stimulate economic growth.

The substantial easing of inflation is attributed to a decline in food prices, particularly vegetables, pulses, and other essential items. This development could lead to reduced borrowing costs and increased spending, benefiting both consumers and businesses.

The RBI's next moves will be closely watched as stakeholders anticipate measures to leverage this newfound economic stability.

Highlights

• India's June CPI inflation hits 2.10%, a six-year low.
• Food price deflation is a major driver of the drop.
• Experts anticipate potential RBI rate cuts to boost growth.

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Top 5 Key Insights

• Inflation Falls to 6-Year Low: India's retail inflation reached 2.10% in June 2025, the lowest since January 2019. This substantial decrease provides the RBI with increased flexibility in its monetary policy decisions.

• Food Prices Decline Significantly: The Consumer Food Price Index (CFPI) showed a year-on-year deflation of -1.06%, a sharp contrast to May 2025. This decline in food prices is attributed to improved supply conditions and favorable harvests, offering relief to consumers.

• Rural Inflation Eases: Rural India experienced a notable easing in both headline and food prices, with CPI inflation dropping to 1.72%. This trend indicates a broad-based moderation in price increases across different sectors of the economy.

• RBI Revises Inflation Forecast: The RBI has revised its FY26 CPI inflation forecast downwards to 3.70%, reflecting confidence in continued price stability. This revision suggests that the central bank anticipates maintaining inflation within its target range.

• Potential for Rate Cuts: With inflation under control, the RBI may consider further repo rate cuts to stimulate economic activity. Lower interest rates could boost spending and investment, supporting overall economic growth.

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Expert Insights

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank: "The softer than expected headline inflation comes on the back of moderating food prices. However, core inflation has ticked up. Overall, the high frequency mandi prices suggest food prices remain largely muted, except for few vegetable prices. We expect the FY26 inflation to undershoot RBIs estimates of 3.7% by around 50bps."

Radhika Rao, Executive Director and Senior Economist at DBS Bank: "June inflation rose by the slowest pace in six years, in line with our forecast of 2.1% year-on-year, compared with 2.8% the previous month. Despite the sequential rise in perishables, especially vegetables, the broad food basket remained on a disinflationary path led by cereals and pulses, keeping headline inflation in check. In addition, core-core readings also stayed benign, reflecting slack in the economy, which was also mirrored in the sub-1% core non-food manufacturing WPI inflation."

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Wrap Up

The sharp drop in India's June inflation offers a promising outlook for economic stability and potential growth. The RBI's response to these figures will be crucial in shaping the country's financial trajectory.

This situation underscores the ongoing interplay between monetary policy, agricultural output, and consumer well-being in India's evolving economic landscape.

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Author

Liam O'Connell - A senior financial markets analyst based in London with over a decade covering global financial trends. He provides expert analysis on market movements and investment strategies for Enlightnr.