(Reuters) -India’s retail inflation stayed below the Reserve Bank’s 4% target for the fourth straight month in May on easing food prices, reinforcing the case for last week’s surprise 50 basis point interest rate cut by the central bank.
Annual retail inflation slowed to 2.82% in May from 3.16% in April, the lowest in more than six years, and below economists’ estimate of 3% in a Reuters poll.
COMMENTARY:
ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURUGRAM
“ICRA expects the CPI-food and beverages inflation to ease further in June 2025, supported by a favourable base. This is expected to pull down the headline CPI inflation print to ~2.5% in the month.”
“As of now, we expect rates to be unchanged in the August 2025 policy review. Nevertheless, given our lower inflation and growth forecasts vis-a-vis the projections of the MPC, we are not ruling out the possibility of a final 25 bps rate cut in October 2025, by which the monsoon outturn and its impact on food inflation would be clearer.”
MADHAVI ARORA, CHIEF ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI
“The positive inflation surprise and near-term visibility on lower inflation suggest that the RBI may miss its inflation targets for this quarter and year, with inflation likely to form a new reset below 3.3-3.4%.”
“That could trigger the RBI’s reaction function, which as of now has moved gears to a neutral stance after rate cuts front-loading amid inflation downgrade to 3.7% from 4% earlier.”
TERESA JOHN, LEAD ECONOMIST, NIRMAL BANG, MUMBAI
“CPI inflation is likely to undershoot the RBI’s 3.7% forecast for FY26. Our CPI forecast stands at 3.5% (with a downward bias) suggesting scope for further rate cuts of at least 25bps. Rate cuts in this cycle could well be about 150bps.”
SUJAN HAJRA, CHIEF ECONOMIST & EXECUTIVE DIRECTOR, ANAND RATHI GROUP, MUMBAI
“We expect this downward trend in retail inflation to continue through October 2025, with the possibility of a mild uptick thereafter; nevertheless, average inflation for fiscal 2026 is likely to undershoot the RBI’s downwardly revised estimate of 3.7%.”
“Despite this disinflation, the frontloaded rate cuts and liquidity-boosting CRR reductions already announced suggest the RBI will remain on hold until at least September 2025. However, if inflation remains subdued and growth begins to cool, further rate cuts could be on the cards.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“Today’s print further confirms the moderating inflation trend witnessed over the last few months on the back of healthy agriculture supply. We expect the next inflation print to also be close to or below 3%. Beyond that, the progress of the monsoon season could become critical to gauge any risk of food inflation spikes.”
“The RBI has already frontloaded its rate cuts and we do not expect any further rate action in the next policy. We see limited reaction in the bond market to this inflation print.”
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA SECURITIES, MUMBAI
“May CPI inflation came in closer to our expectation led by continued benign food prices. We expect CPI inflation to undershoot RBI’s fiscal year 2026 projection of 3.7% by 20 odd basis points (bps). As such, the prospect of another 25 bps rate cut stays alive.”
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“The headline inflation came in broadly in line with our expectations. High frequency data shows that the vegetable and fruit prices have started surging, offseting the downward trend visible in cereals and pulses.”
“While the overall inflation trajectory is expected to remain benign, the recent front-loaded policy actions and the guidance of limited room for incremental easing suggests prolonged pause for now, with further actions being highly data dependant.”
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
“India’s inflation came in close to our expectations in May, below 3%, softest since mid-2019. Selected perishable food groups were up modestly on a sequential basis but moderated on annual terms, aiding the headline.”
“Benign core-core prints point to economic slack, backing recent moves to front-load monetary and liquidity stimulus. Monsoon developments warrant attention after progress stalled after an early onset. For the full year, we expect inflation to average below 4%, aligning with our core-core measures.”
(Reporting by Manvi Pant, Kashish Tandon, Nishit Navin, Hritam Mukherjee, Meenakshi Maidas, Yagnoseni Das in Bengaluru; Compiled by Tasim Zahid)
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