Retail inflation hits 5-year low, paving way for more RBI rate cuts

India’s retail inflation dropped to its lowest level in more than five years in March, driven by a sustained decline in food prices, bolstering expectations of further interest rate cuts by the Reserve Bank of India (RBI) amid global economic headwinds.

According to official data released April 14, consumer price inflation eased to 3.34% in March, well below economists’ forecast of 3.60% and the lowest since August 2019. In comparison, retail inflation stood at 3.61% in February.

“Retail inflation is getting a repeated breather from softer food inflation,” said Dipanwita Mazumdar, economist at Bank of Baroda, pointing to improving prospects for farm output.

Food inflation — the key driver behind the recent disinflationary trend — slowed sharply to 2.69% in March from 3.75% in February, its lowest reading since November 2021. Vegetable prices saw a year-on-year plunge of 7.04%, reversing the 1.07% rise recorded the previous month.

The drop in prices comes as the RBI, in a proactive move last week, trimmed its benchmark interest rate for the second time in a row and signaled a continued easing bias.

The central bank also cut its GDP growth forecast for the current fiscal year to 6.5%, down from an earlier estimate of 6.7%, citing concerns over global uncertainties including the ongoing US-China trade tensions.

Despite the upbeat inflation data, the RBI remains cautious. It warned of potential inflationary risks stemming from volatile global markets and weather-related supply disruptions, although it maintained a 4% retail inflation forecast for the fiscal year — contingent on a normal monsoon.

Encouragingly, early forecasts suggest India is likely to receive above-average rainfall in 2025, which could further support farm output and tame food prices.

Economists expect more room for monetary accommodation. “Based on domestic factors alone, we see space for at least two more rate cuts in the remainder of 2025,” said Gaura Sen Gupta of IDFC First Bank. “We don’t rule out the possibility of a third cut if global growth conditions deteriorate further.”

Meanwhile, cereal inflation moderated to 5.93% from 6.1% in February, and pulse prices dropped 2.73%, deepening the fall from the previous month’s 0.35% decline.

Core inflation — which strips out volatile food and fuel components and offers a clearer picture of underlying demand — ticked up marginally to 4.1% in March from around 3.9%-4% the month before, according to two economists.

The RBI’s next policy review is scheduled for June, just ahead of a key US tariff deadline in July — another factor that could influence the central bank’s path forward.