India’s inflation rate in February fell to a lower-than-expected 3.61% in February as vegetable prices cooled, the country’s Ministry of Statistics and Programme Implementation said Wednesday.
Economists polled by Reuters had expected a reading of 3.98% for the period. This is first time since last summer that inflation has come in below the RBI’s target of 4% and marks the lowest monthly print since July 2024.
Food inflation, which is a key constituent of the country’s CPI, hit 3.75%, with vegetable prices prices dropping by an annual 1.07%, compared with a 11.35% hike in January. Prices for pulses likewise contracted by 0.35% in February, versus a 2.59% hike in in the previous month.
Price growth for cereals and products meanwhile eased to 6.1% in February, little changed from the 6.24% of January.
In a note on March 5, Bank of America analysts flagged that vegetable prices in particular have fallen sharply since October given higher supplies, especially for potatoes and tomatoes.
“We do expect the correction in vegetable prices to start reversing, possibly as early as March, with risks from heatwaves and weather-related disruptions to crops,” they added.
The dip in inflation and slowing growth in the world’s fifth-largest economy could bolster the case for India’s central bank to press ahead with further interest rate cuts, after implementing its first trim in nearly five years early last month. The move, which took the country’s repo rate down by 25 basis points to 6.25% at the time, took place as India’s GDP expanded by a weaker-than-expected 6.2% in the fourth quarter. More broadly, the Indian economy grew by just 6.5% in the financial year to March 2025 — a sharp slowdown from 9.2% the year before.
Yet the RBI Monetary Policy Committee has previously flagged ongoing concerns over headwinds in global markets, which are currently being rattled by a spate of tariff wars.
“The global economic outlook remains challenging with disinflation easing, geopolitical tensions and policy uncertainties. The strong dollar continues to put pressure on emerging market currencies and increase volatility in financial markets, among others,” the RBI said in Google-translated minutes of its February meeting.
Bank of America analysts said that monetary policy in the country has now “pivoted firmly to support growth” as medium-term inflation forecasts are around the Reserve Bank of India’s 4% target.
The analysts are expecting 100 basis points worth of cuts by the RBI by the end of 2025, including the 25-basis-point reduction delivered in February. “This will bring the repo rate to 5.50% by end-2025, which we identify as being close to the neutral rate,” they said.
Source: CNBC