New Delhi: India’s headline inflation is projected to remain below the Reserve Bank of India’s (RBI) 4% target for the next two quarters, driven by a favourable base effect and subdued food prices, according to a recent report by CareEdge Ratings.
The report highlights that the recent easing of inflation has primarily been due to falling food prices. Consumer Price Index (CPI) inflation dropped to 2.1% in June 2025 — the lowest level recorded since January 2019.
While inflation is expected to stay low in the short term, the report warns that it could rise starting in the third quarter, potentially crossing the 4% mark in the final quarter of the current financial year as the base effect diminishes.
For the full fiscal year 2025–26 (FY26), CareEdge estimates average CPI inflation at around 3.1%, notably lower than the RBI’s projection of 3.7%.
However, the report also cautions that due to the low base effect in FY26, inflation may climb to approximately 4.5% in FY27.
The sharp fall in June’s inflation was mainly attributed to deflation in food and beverages, particularly vegetables, pulses, spices, and meat. However, edible oils and fruits continued to witness double-digit inflation.
Edible oil prices remain a concern due to India’s reliance on imports. Still, the report noted that recent reductions in customs duties, along with healthy kharif sowing, should help alleviate pressure in the coming months.
The RBI, having already frontloaded rate cuts and ensured sufficient liquidity in the system, is expected to maintain status quo on rates in its upcoming August monetary policy meeting. A “wait-and-watch” stance is likely as the central bank monitors the effects of earlier policy moves, especially in light of the US Federal Reserve’s hawkish tone and a strengthening US dollar.
Despite global economic uncertainties, India’s external sector remains resilient. Foreign exchange reserves currently stand at $695 billion, and the current account deficit for FY26 is projected at a modest 0.9% of GDP.
Strong performance in services exports is expected to continue supporting India’s external balance, the report added.
With inputs from IANS