Inflation eases, but RBI may not go for aggressive cuts

A softer inflation print in February is unlikely to prompt the Reserve Bank of India's (RBI's) rate-setting body to opt for deeper cuts, especially when system liquidity remains in deficit and the full transmission of the 25-basis-point (bp) rate cut in February is yet to take place, economists said.

- SUBRATA PANDA

India's headline CPI inflation eased to 3.61 per cent in February—the lowest since July 2024—on the back of a sharp decline in food inflation, mostly due to lower vegetable prices. In January, headline inflation stood at 4.3 per cent.

According to UBS Securities, headline CPI inflation is expected to average 4.2 per cent in 2025-26.

"Despite February's inflation print coming in below 4 per cent, we anticipate a shallow rate cut trajectory by the RBI, with a 25-bp cut in April followed by another 25 bp in June. While softer inflation presents an opportunity for a deeper rate cut, the RBI's decision will depend on the US Fed's rate actions, domestic growth dynamics, and inflation-related uncertainties," said Gaura Sen Gupta, chief economist, IDFC Bank.