RBI Likely to Reduce Rates Soon After a Short Break

More Funds Needed Later in FY26: Report

NEW DELHI: The Reserve Bank of India (RBI) could lower interest rates soon. This follows a short pause. A report from Angel One, named “Ionic Wealth,” suggests this. ANI shared the report’s findings. The central bank may need to provide more funds in the second half of the fiscal year 2025-26 (H2 FY26).

Lower Inflation Expected

The RBI recently reduced its inflation forecast for FY26 to 3.7%. They expect the first quarter’s inflation to be 2.9%. April and May’s average inflation was close to this estimate. The report states, “We think the RBI will reduce rates further after a brief pause. More funds will be needed in H2.”

CPI Inflation Drops

India’s Consumer Price Index (CPI) inflation fell to 2.82% year-on-year in May 2025. This is lower than April 2025’s 3.16%. Monthly figures show a drop of 35 basis points. Core inflation also slightly decreased to 4.28%, down from the previous month’s 4.36%.

Chance for Economic Growth

Current inflation figures give the RBI more space to support economic growth. Growth is still a top priority. However, the report cautions that external factors could impact future inflation. These factors include global politics and trade deals. The report adds, “Some uncertainty remains due to imported inflation.”

Food Prices Become Steady

Food prices have become more stable. Food inflation decreased to 0.99% in May from April’s 1.78%. Vegetable prices fell sharply by 13.7% year-on-year. Pulses prices dropped by 8.2% year-on-year, partly due to the base effect. Cereal price increases slowed to 4.7% in May from April’s 5.4%.

Better Supply Conditions

The report attributes the stability in food prices to improved supply conditions. This is supported by a strong rabi harvest and good kharif sowing conditions.

Key Takeaways

• The RBI may reduce interest rates after a short pause.
• More funds might be needed in the second half of FY26.
• The inflation forecast for FY26 has been lowered to 3.7%.
• CPI inflation decreased to 2.82% in May 2025.
• Food inflation dropped to 0.99% in May.
• Improved supply conditions have helped stabilize food prices.