Our Bureau
Mumbai
India’s consumer inflation rate dropped to a six-year low of 2.1% in June 2025, extending a downward trend that has lasted for eight consecutive months, according to government data released recently. This figure was below economists’ expectations and marks the fifth straight month inflation has remained under the Reserve Bank of India’s (RBI) medium-term target of 4%.
The decline in inflation is largely attributed to falling food prices, which decreased by 1.06% year-on-year, supported by a favorable base effect and strong agricultural output, including a record wheat harvest and increased pulse production. Early monsoon rains have further bolstered expectations of a robust crop season, which is expected to keep food inflation subdued for the foreseeable future.
This sustained easing of inflation has provided the RBI with greater flexibility to continue its accommodative monetary policy. In its June 2025 Monetary Policy Committee (MPC) meeting, the RBI cut the policy repo rate by 50 basis points to 5.5%, the sharpest single cut since the pandemic era, marking the third rate reduction this year. However, the RBI also shifted its policy stance from accommodative to neutral, signalling limited room for further easing in the near term.
Economists suggest that while the RBI may pause rate cuts in the immediate August policy review to monitor monsoon and inflation durability, there is a growing probability of another 25 basis point cut in October, depending on economic conditions. The RBI has also revised down its inflation forecast for the fiscal year 2025-26 to 3.7%, reflecting the current trend of subdued price pressures.
RBI Governor Sanjay Malhotra highlighted that the combination of strong harvests and favorable weather conditions should ensure sufficient supply of essential food items, which will help maintain low inflation. This environment is expected to enhance real wages and boost consumer purchasing power, particularly benefiting the informal sector of the economy.
Overall, the continued moderation in inflation alongside RBI’s rate cuts aims to support economic growth, projected at around 6.5% for the fiscal year, while keeping inflation within the target range.
