RBI Likely To Ease Interest Rate In H2 FY26 Amid Cooling Inflation: Report

India’s central bank recently lowered its inflation forecast for FY26 to 3.7 per cent. For the April–June quarter, inflation is projected at 2.9 per cent

Improved agricultural supply, a robust rabi harvest, and promising kharif sowing conditions were credited for the softening food prices

Source : PTI

The Reserve Bank of India (RBI) is expected to resume monetary easing after a brief pause, as inflation continues its downward trajectory and liquidity needs could rise in the latter part of FY26. According to Angel One’s latest Ionic Wealth report, there’s a strong possibility of further interest rate reductions, particularly in the second half of the fiscal year.

India’s central bank recently lowered its inflation forecast for FY26 to 3.7 per cent. For the April–June quarter, inflation is projected at 2.9 per cent, with current averages for April and May aligning closely with this projection.

"We reiterate our view that a) the RBI will likely ease more after a brief pause, and b) more liquidity injection will be required in H2," the report stated, suggesting the central bank may need to balance growth support with liquidity infusions.

Price Pressures Continue To Ease

India’s Consumer Price Index (CPI) inflation softened considerably in May 2025, falling to 2.82 per cent from 3.16 per cent in April. Month-over-month, this marked a 35 basis point drop. Core inflation, excluding food and fuel, also saw a marginal dip, settling at 4.28 per cent versus 4.36 per cent in April.

The report emphasized that the latest inflation figures provide the RBI with additional flexibility to prioritize growth. However, it cautioned that external factors, including geopolitical instability and global trade developments, could still impact price trends in the months ahead. “Some uncertainty lingers from imported inflation,” it noted.

Food Prices Drive Overall Decline

A key reason for the drop in headline inflation was a broad-based cooling in food prices. Food inflation dropped to 0.99 per cent in May from 1.78 per cent in April. Vegetables led the decline with a sharp 13.7 per cent year-on-year decrease, while pulses were down by 8.2 per cent, aided by last year’s high base. Cereal inflation also slowed to 4.7 per cent from 5.4 per cent.

Improved agricultural supply, a robust rabi harvest, and promising kharif sowing conditions were credited for the softening food prices.

As the domestic inflation environment stabilizes, the RBI’s focus may now pivot more assertively toward stimulating growth through calibrated rate cuts and liquidity support in H2 FY26.