Will RBI Delay Rate Cuts Until Growth Signals Strengthen?
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Synopsis
The RBI is unlikely to cut rates in August, even with CPI inflation at a historic low of 2.10%. Experts suggest the central bank will wait for clearer indicators of growth before making any significant policy changes. Learn more about the implications for India's economy.
Key Takeaways
- CPI inflation dropped to 2.10%, the lowest since January 2019.
- The RBI is expected to maintain current interest rates in August.
- Economists anticipate a potential rate cut by October.
- The decline in inflation benefits households and businesses.
- Food price decreases have significantly contributed to the overall inflation drop.
New Delhi, July 14 (NationPress) The recent easing of CPI inflation in June to 2.10 percent — the lowest year-on-year inflation since January 2019 — provides the Reserve Bank of India (RBI) with considerable flexibility. However, economists believe that an immediate shift in policy during August is unlikely.
The RBI monetary policy committee (MPC) is expected to maintain current interest rates and await clearer signals of growth, particularly from investment and export activities, prior to any adjustments, according to Arsh Mogre, an economist at PL Capital.
“The present real policy rate of +340 bps (with a repo rate at 5.50 percent against CPI at 2.10 percent) is already quite restrictive by both historical and emerging market standards. Nevertheless, the central bank may opt to verify the sustainability of food disinflation from July to September and observe the trajectories of kharif sowing and rainfall before indicating the next phase of easing,” Mogre noted.
Experts view a rate cut in October as the base case, provided that inflation continues to moderate and external conditions remain stable. Overall, the macro narrative is shifting from focusing on controlling inflation to determining the right timing and extent of support for growth.
The CPI inflation has been on a downward path, decreasing from 6.2 percent in October 2024 to 2.10 percent in June 2025, marking a decline of 72 basis points in headline inflation from May 2025.
This decline has significantly benefited households, businesses, and India’s overall growth, as stated by Hemant Jain, President of the PHDCCI.
The sharp drop in both headline and food inflation during June is primarily due to decreasing prices in vegetables, pulses, meats, cereals, sugar, milk, and spices.
“Looking ahead, assuming a normal monsoon, we expect CPI inflation to stay well within the RBI's target range,” Jain added.
Despite worries about uneven monsoon patterns in June, price impacts have remained manageable thanks to strong arrivals in mandis, particularly for pulses, onions, and oilseeds, experts reported.
Aditi Nayar, Chief Economist at ICRA, noted that Kharif sowing has risen by an impressive 6.6 percent, which bodes well for stabilizing food prices.
“ICRA anticipates that headline CPI inflation will continue to fall, potentially reaching 1.9 percent in July 2025, despite a challenging base,” Nayar remarked.
Point of View
It is essential to emphasize that the RBI's cautious approach reflects a deep understanding of both inflation trends and the broader economic landscape. By prioritizing stability and growth, the RBI aims to navigate the complexities of the current financial environment, ensuring that India's economy remains resilient.
NationPress
14/07/2025
Frequently Asked Questions
What is the current CPI inflation rate?
As of June, the CPI inflation rate stands at 2.10%, the lowest recorded since January 2019.
When can we expect a rate cut from the RBI?
Experts suggest that a rate cut may occur in October, contingent on ongoing inflation moderation and external stability.
Why is the RBI waiting before changing interest rates?
The RBI is likely to wait for stronger growth signals, especially from investment and exports, before making any policy adjustments.
How has the decline in inflation impacted the economy?
The significant decline in inflation has provided substantial relief to households and has benefited businesses, contributing positively to India's growth.
What factors contributed to the decline in food inflation?
The decrease in food inflation is primarily attributed to falling prices in various categories, including vegetables, pulses, and cereals.
