RBI to wait for stronger growth signals before rate cut as inflation cools: Economists

New Delhi, July 14 The further softening of the CPI inflation in June to 2.10 per cent -- lowest year-on-year inflation recorded since January 2019 -- gives the Reserve Bank of India (RBI) significant room to manoeuvre but we do not expect an immediate policy pivot in August, economists said on Monday.

The RBI monetary policy committee (MPC) is likely to hold rates and wait for stronger growth signals — particularly from investment and export activity — before calibrating further action, said Arsh Mogre, economist, PL Capital.

“The current real policy rate of +340 bps (repo at 5.50 per cent vs CPI at 2.10 per cent) is already highly restrictive by both historical and global EM standards. However, the central bank may prefer to validate the durability of food disinflation across July–September and monitor the kharif sowing and rainfall trajectory before signalling the next round of easing,” said Mogre.

A rate cut in October remains the base case, contingent on continued inflation moderation and external stability. In sum, the macro narrative is transitioning from anchoring inflation to assessing the timing and depth of growth support, according to experts.

The CPI inflation is following a continuously easing trajectory, from 6.2 per cent in October 2024 to 5.4 per cent in November 2024, to 5.2 per cent in December 2024, 4.26 per cent in January 2025, 2.82 per cent in May 2025 and now 2.10 per cent in June, posing a decline of 72 basis points in headline inflation of June 2025 in comparison to May 2025.

This has provided a substantial boost to households, businesses and India’s growth, said Hemant Jain, President of industry chamber PHDCCI.

The significant decline in headline inflation and food inflation during the month of June is mainly attributed to decline in inflation of vegetables, pulses and products, meat and fish, cereals and products, sugar and confectionery, milk and products and spices.

“Moving ahead, assuming a normal monsoon, CPI inflation is expected to remain well within the RBI’s target band,” said Jain.

Despite concerns over uneven monsoon spatiality in June, the impact on prices remains contained as mandi arrivals remained robust, especially in pulses, onions, and oilseeds, said experts.

According to Aditi Nayar, Chief Economist at ICRA, Kharif sowing is up by a robust 6.6 per cent which augurs well for containing food prices.

“ICRA expects the headline CPI inflation to recede further and bottom out at 1.9 per cent in July 2025, despite an unfavourable base,” Nayar mentioned.

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