India’s Inflation Drops to 3.61% in February 2025, Raising Prospects of April Rate Cut
India’s retail inflation fell to 3.61% in February 2025, marking the first time in six months that it has dropped below the Reserve Bank of India’s (RBI) medium-term target of 4%. This decline is primarily attributed to a decrease in food prices, particularly vegetables, which saw a 1.07% year-on-year reduction. The easing of inflationary pressures has led to increased expectations that the RBI may implement a 25 basis points (bps) rate cut in its upcoming April meeting to support economic growth.
In its February meeting, the RBI’s Monetary Policy Committee (MPC) reduced the policy repo rate by 25 bps to 6.25%, marking the first interest rate reduction in nearly five years. This decision was made against the backdrop of expected easing of inflation and slowing economic growth. The recent inflation data further strengthens the case for additional monetary easing. Economists anticipate that the RBI will continue its accommodative stance, with some forecasting a cumulative reduction of 50 bps between April and August 2025.
The decline in inflation is largely due to favorable food prices, as the arrival of fresh winter produce has contributed to a slowdown in food price increases. Food inflation decreased to 3.75% in February, the lowest level since May 2023. However, core inflation, which excludes food and energy prices, saw a slight uptick to 4% in February.
The RBI has projected inflation at 4.2% for the fiscal year 2025-26, with quarterly estimates ranging between 3.8% and 4.5%. The central bank’s mandate is to keep inflation within a 2-6% target range. The recent easing of inflation offers relief to Indian households and provides the RBI with room to maneuver its monetary policy to support economic growth.
In addition to the favorable inflation data, India’s benchmark indexes, Nifty 50 and Sensex, opened slightly higher on Thursday, March 13, 2025, due to favorable global market trends and lower-than-expected inflation data in both the U.S. and India. The IT sector led the gains, with the IT index up by 0.7%, despite confirming a bear market the previous day.
The combination of easing inflation and positive market sentiment strengthens the case for the RBI to consider further rate cuts in its upcoming meetings. However, policymakers will need to remain vigilant of potential risks, including unexpected weather disruptions and geopolitical uncertainties, which could impact future inflation trends. Overall, the current economic indicators suggest that the RBI has the flexibility to adopt a more accommodative monetary policy stance to support India’s economic growth.
