According to data released by the government on March 12, India's retail inflation dropped to 3.61% in February, the lowest level in seven months, while food inflation fell below 4% for the first time in two years. This has strengthened expectations that the Reserve Bank of India (RBI) may continue to cut interest rates in its upcoming April meeting.

MK Global's Chief Economist, Madhavi Arora, stated, "The broad-based easing in food inflation, led by perishable foods and some protein-rich items, made February's CPI data better than expected." February marks the third time this fiscal year that inflation has fallen below 4%. This figure was lower than the average of 3.8% forecasted by 19 economists in the MC poll.

Food inflation fell to 3.75%, the lowest level in 21 months, as vegetable prices decreased by 1.1% compared to the previous year, while they had increased by 11.4% in January. Food prices saw a 6% increase compared to last year. Pulses prices also saw a decline in February, while they had risen by 2.6%. Bank of Baroda's Chief Economist, Madan Sabnavis, mentioned that the problematic areas were fruits and vegetable oils. The depreciation of the rupee also affected vegetable oils, increasing import costs.

However, core inflation rose at its fastest pace in seven months due to a surge in gold prices. In February, the inflation of miscellaneous items rose from 4.4% in the previous month to 4.8%, while personal care and effects inflation increased from 10.6% to 13.6%. Arora added, "The partial offset of easing food prices was mainly driven by a sharp rise on a monthly basis – the highest in the last seven months! Personal care and effects were responsible, reflecting the impact of gold prices, which were driven up due to the depreciation of the rupee."

The decline in inflation is likely to help the RBI's Monetary Policy Committee (MPC) further reduce the policy rates in its April meeting, as consumer inflation has fallen below the RBI's target of 4%. The central bank expects inflation to remain low in the coming year, with an estimated inflation of 4.2% for FY 2026. The low print is also expected to help reduce inflation prints in the last quarter.

ICRA's Chief Economist, Aditi Nair, said, "The CPI inflation figures for February 2025 falling below 4% have strengthened expectations of a 25 basis point rate cut in the upcoming April 2025 MPC meeting. Another 25 basis point cut in the repo rate could take place in June 2025 or August 2025, largely depending on the GDP growth figures for the fourth quarter of FY 2025."

Economists predict that despite inflation falling to 3.8% by the third quarter of the upcoming financial year, rate cuts will likely remain limited. A survey conducted before the release of GDP data in February showed that economists expect RBI to cut rates again after April, with the policy rate ending at 5.75% for FY 2026. Nair added, "We are concerned that due to cash shortages, the benefit of rate cuts may be delayed in reaching bank deposits and lending rates."