RBI POISED TO EASE RATES FURTHER AS INDIA EYES STEADY ECONOMIC RECOVERY

On 6 June, RBI may reduce repo rate by 25 bps, marking 3rd consecutive cut since Feb

- KAUSHIK DAS

of 6.5%, while maybe lowering CPI inflation forecast to 3.8%, from 4%. In April, RBI revised both the growth and inflation forecasts lower. The policy coordination between the government and RBI remains the strongest now, with the fiscal and monetary authorities showing strong resolve to do "whatever it takes" to prevent India's growth from slipping much below its potential.

Inflation in check The early onset of the monsoon has led to a 10-25% rise in key vegetable prices, including tomatoes and leafy greens. Despite a projected 2.3% month-on-month increase in food prices during June and July, headline CPI inflation is expected to remain around 3.1-3.2% year-on-year due to a favourable base effect. However, a sharper spike, similar to July 2023's 214% surge in tomato prices, could temporarily push inflation to 4.1-4.2%. This is expected to normalise by September, suggesting any inflation spike will be short-lived and unlikely to materially affect the full-year outlook. Nonetheless, such volatility may prompt RBI to pause in its August review.