Reserve Bank of India / Retail inflation of February 2025- Possibility of reduction in loan rates is strong

Reserve Bank of India: Retail inflation has reached a seven-month low of 3.61 per cent in February 2025. This significant decline has increased the possibility of a cut in loan rates in the near future. The Reserve Bank of India (RBI) will announce the bi-monthly monetary policy on April 9, in which an additional cut of 0.25 per cent is expected.

Reasons for falling inflation

The RBI has been given the target of maintaining retail inflation within 4 per cent (+/- 2 per cent). The decline in inflation is mainly due to the reduction in food prices. In this context, the RBI had reduced the repo rate by 25 basis points last month.

Experts' opinion

According to a PTI report, ICRA Chief Economist Aditi Nair says that CPI inflation has come down more than expected. It is well below the target set by the RBI's Monetary Policy Committee. However, she also cautioned that the increase in vegetable prices in March 2025 could balance food inflation.

Rate cut likely in April 2025

Aditi Nair believes that inflation falling below 4 percent has increased the possibility of a consecutive 25 basis point rate cut in the RBI's Monetary Policy Committee (MPC) meeting in April 2025. In addition, another 25 basis point cut is expected in June 2025 or August 2025.

NSO data

According to the National Statistical Office (NSO), February 2025 inflation was 65 basis points lower than January 2025. This is the lowest recorded inflation since July 2024. The NSO collects this data from 1,114 urban markets and 1,181 villages.

Conclusion

The fall in inflation is giving the RBI scope to cut rates, which can make loans cheaper. If this trend continues, further interest rate cuts may be seen in the coming months.