New Delhi: According to Bank of Baroda, the consumer price index (CPI), which measures retail inflation, is expected to fall below the Reserve Bank's target during the January-March 2025 quarter, potentially allowing for a reduction in the policy rate.
In February 2025, India's retail inflation showed significant improvement, with the year-on-year CPI inflation rate recorded at 3.61 percent, a decrease of 65 basis points from the previous month.
This marks the first time in six months that retail inflation has dipped below 4 percent, primarily due to a drop in vegetable prices.
Dipanwita Mazumdar, an economist at Bank of Baroda, stated, "We do not foresee major risks for food inflation. However, caution is warranted due to the possibility of an unexpectedly hot summer, persistent international edible oil prices, and global inflationary pressures."
Currently, factors favoring a lower overall inflation rate include a strong Rabi harvest, improved government supply management, stable commodity prices, a favorable outlook for energy prices, and reduced reliance on imported goods within the CPI basket.
The economist further noted, "We anticipate the CPI to stabilize at 4.6 percent for 2024-25, with our estimate for Q4 at 3.8 percent."
The decline in headline CPI has been supported by food inflation at a critical time when global inflation uncertainties were prevalent.
The notable drop in February's inflation, especially in food categories, was largely due to reduced prices for essential items such as vegetables, eggs, meat, fish, pulses, and dairy products. These price adjustments have offered significant relief to households facing rising living costs in recent months.
Food prices continue to pose a challenge for Indian policymakers aiming to sustainably reduce retail inflation to 4 percent.
However, the most recent inflation figures indicate that inflation is largely under control. While inflation remains a significant issue for numerous countries, including developed economies, India has effectively managed its inflation path.
To maintain this stability, the Reserve Bank of India (RBI) has kept the repo rate high. The repo rate refers to the interest rate at which the RBI provides loans to other banks.
