Retail inflation is expected to continue the downward trend when data for April is released on May 13. Inflation likely dipped to a near six-year low of 3.27 percent in April, down from 3.34 percent in the previous month, a Reuters poll of 43 economists conducted May 5–8 said.
If it holds, it will be the third month in a row that the inflation print will come in below the Reserve Bank of India’s (RBI) 4 percent medium-term target, driven by a surprise moderation in food prices despite intense heatwaves.
The data will have a bearing on the RBI’s policy direction, offering room for a growth-supportive stance amid a slowing economy when its monetary policy committee (MPC) meets for a bi-monthly review.
But, it will not be a cakewalk. The tense situation with Pakistan after four days of intense aerial warfare and global uncertainties warrants a cautious approach.
The anticipated decline to 3.27 percent — the lowest since mid-2019 — would largely be driven by easing food prices, which account for nearly half of the CPI basket.
Economists, including Gaura Sengupta of IDFC First Bank, note that vegetable, pulse, cereal, and fruit prices have defied seasonal expectations of a summer uptick, thanks to a robust harvest.
This resilience amid heatwaves has provided relief to households where food dominates budgets. Early forecasts of above-average monsoon rains further bolster hopes of a strong output, potentially sustaining this trend and boosting rural demand in India’s agriculture-dependent economy.
Inflation internals key
Core inflation, excluding volatile food and energy components, is estimated to have softened to 4 percent in April from 4.1 percent in March, signalling moderating domestic demand pressures.
Wholesale price index (WPI) inflation is projected to ease to 1.76 percent from 2.05 percent, reinforcing the broader disinflationary trend.
These figures suggest the RBI has greater policy flexibility, especially after two consecutive 25 basis points (bps) repo rate cuts in February and April, bringing the rate to 6 percent.
The MPC’s shift to an “accommodative” stance in April reflects a pivot towards supporting growth, which slowed to 6.2 percent in Q3 FY25, down from 9.2 percent in the year-ago period.
The April CPI data can strengthen the case for another cut in the June meeting.
With inflation projected to average 4 percent this fiscal, aligning with the RBI’s forecast, and growth facing headwinds due to global trade tensions, largely on account of US President Donald Trump’s tariff moves, the RBI may prioritise stimulating demand.
State Bank of India economists predict a cumulative 75–100 bps cut by March 2026, with June as a potential next step.
What lower rates would mean
Lower rates could ease borrowing costs for consumers and businesses, spurring investment and consumption in sectors such as real estate and manufacturing, which are showing signs of softening.
However, risks loom.
Gold prices, a key barometer of safe-haven demand, rose 5 percent in April amid global trade uncertainties, signalling imported inflation pressures.
The rupee, which sank to a record low of 87.59 against the dollar in February, faces depreciation risks due to a strong dollar and US tariffs.
These factors can widen India’s trade deficit, particularly if oil prices climb, complicating the RBI’s math.
What will MPC do?
The April CPI data, if it is in line with estimates, will likely embolden the RBI to maintain its “accommodative” stance and consider a modest 25 bps cut in June.
Yet, the central bank will remain vigilant, mindful of currency pressures and global volatility.
(Banking Central is a weekly column that keeps a close watch on and connects the dots regarding the sector's most important events for readers.)
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