Kolkata: A declining rate of retail inflation is one of the most exhilarating piece of news that a common person can receive from his/her economic environment. The retail inflation rate of India in April dropped to a six-year low of 3.16% from a level of 3.34% in March 2025. The enabling factor: a moderation in food prices. The most significant fallout of this development is that Reserve Bank might feel emboldened to cut Repo Rate once again in the next MPC (monetary policy committee) meeting in June.
The factor that can embolden the RBI to cut rates is the fact the durability factor of low inflation. April is the third consecutive month when the inflation gauge has remained below the RBI’s target level of 4%.
RBI cut rates twice in 2025
The first rate cut that RBI did in 2025 was in February when Repo Rate was cut by 25 basis points. The central bank followed it up with the same degree of trimming in its April meeting. As a result, almost all major banks in the country from SBI to HDFC Bank trimmed their lending rates by at least 25 basis points. “Needless to emphasise, if the RBI again trims the key policy rate next month, banks will be slashing lending rates again,” said Dey.
Banks cut their MCLR (Marginal Cost of Funds-based Lending Rates), the minimum rate that each bank works out for itself below which it is not permitted to lend. Since, all lending rates from retail to corporate loans are linked to MCLR, the lending rates transmit the beneficial impact of the RBI rate cut. As a result, EMIs on all loans such as home loans, auto loans, education loans and personal loans come down.
Significantly, a SBI Research Report has forecast a 125 basis point rate cut in FY26, which can engender a significant drop in interest rates on a whole range of loans, triggering consumption.
Food inflation the real trigger
“Since inflation has come down to 3.16% in April and there are signs of durability of a benign inflation rate, the RBI can feel emboldened to attempt another rate cut in its June MPC meeting. A 25 basis point rate cut is highly probable,” said Nilanjan Dey, investment strategist and director Wishlist Capital. Dey pointed out that the bright spot on the horizon is the fact that food inflation which has been the real villain in 2024 and prevented the retail inflation level from coming down seems to be under control.
Food inflation accounts for almost 48% of the Consumer Price Index basket. The rate of food inflation decelerated to 1.78% in April. It was 2.69% in March.
Low rates of inflation is perhaps the best news that the common man can expect from the macro-economic environment. It means many things among which are a higher level of consumption, lower rates of interest and potential for employment generation. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
