The Reserve Bank of India (RBI) indicated that Consumer Price Index (CPI) inflation would reach 4 % in 2025–26. The RBI's latest inflation projection stands at 4%, initially setting the target at 4.2%. The adjustment factors raised agricultural production and lowered international crude oil prices, which both contributed to more favourable inflation conditions.
According to RBI Governor Sanjay Malhotra, the current inflation data showed improvement throughout January and February 2025. He observed that Rabi crop projections and strong Kharif arrivals resulted in this downward trend. According to the second advance estimate, the nation witnessed a record wheat harvest while pulse production exceeded the previous year's numbers. The food inflation outlook grew positive after the forecast of a standard monsoon and significant reductions in crude oil prices.
The RBI's updated inflation prediction has created possibilities for more powerful interest rate reductions. According to Suvodeep Rakshit from Kotak Institutional Equities, combining favourable monsoons and declining oil prices can counter depreciation risks, supporting economic advancement. The current environment allows the RBI to focus on boosting economic development while inflation approaches the 4% target.
Based on the forecasted inflation tracking and the RBI target of 4%, Parijat Agrawal from Union Asset Management Company's Fixed Income department pointed to a greater need for interest rate cuts. According to the central bank announcement, the repo rate's 25 basis point reduction now stands at 6%. Market analysts project that the financial year will bring more interest rate cuts, totalling between 75 and 100 basis points.
According to Dr Manoranjan Sharma, the current policy stimulus originates from declining inflation combined with weak future economic predictions. CPI inflation stood at 3.6 per cent, marking one of its lowest levels in the past six years. This, Apurva Sheth from SAMCO Securities noted, enabled the central bank to feel more comfortable implementing easing monetary policies.
The February 2025 CPI inflation reading of 3.61 per cent fell inside the RBI's established range between 2 and 6 per cent. Commercial Consultant Ajit Mishra from Religare Broking stated that steady retail inflation drops made it possible to cut borrowing expenses. The decrease in interest rates will help grow credit and stimulate sector-wide market demand.
Bank Chief Economist Indranil Pan stated that the projection of growth and inflation decreased by 20 basis points. The expert says the inflation picture remains positive because of better food costs, a normal weather outlook from Skymet, and declining international commodity rates. Analysis indicates that the monetary authority will lower the repo rate to 5.5 per cent.