Scope for 25-50bps RBI Easing with Sharp CPI Cooling: Report

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India’s Inflation to Slow in June, Opening Door for Further Rate Cuts

By S JHA

MUMBAI, July 8, 2025—Analysts at Nirmal Bang believe that the Reserve Bank of India (RBI) may further cut down lending rates. The firm in a note said that inflation in June is poised for sharp colling to set the stage for the RBI to cut rates.

The RBI had sprung a surprise with a 50-basis point rate cut recently. The street was expecting only a 25-basis point rate cut. Now, the brokerage firm in an analysis of expected inflation number claim that the RBI could cut rates with another 25-50 basis points.

India’s inflation metrics is likely to soften significantly in June, boosting expectations for further monetary easing by the RBI amid weak demand conditions and declining food prices.

Consumer Price Index (CPI) inflation is estimated at 2.18% in June 2025, sharply lower from 2.82% in May, driven by a steep drop in food and beverage inflation, which may ease to just 0.24%, down from 1.5% the previous month. The moderation is likely despite a notable 9.5% month-on-month rise in vegetable prices, led by tomatoes, according to a research note by Teresa John, CFA, Deputy Head of Research & Economist at Nirmal Bang.

Core CPI inflation — which excludes food and fuel — may remain range-bound, which is expected at 4.21% in June, slightly up from 4.17% in May, with gold prices remaining stable.

Meanwhile, Wholesale Price Index (WPI) inflation is likely to come in subdued at 0.42% in June, up marginally from 0.39% in May. Food article inflation under WPI may further decline to fall to 3.1% year-on-year. However, the overall WPI trend could see a mild uptick due to rising metal and commodity prices, added the analyst.

The Core WPI may rise to 1.73% in June from 1.34% in May, owing to increased costs in metal products.

The report projects the RBI’s CPI inflation forecast to average around 3.5%, with a clear downward bias, creating room for policy easing. Analysts at Nirmal Bang now expect at least 25 basis points (bps) of rate cuts in upcoming policy reviews and see a maximum possibility of 50bps if disinflation persists and global risks remain manageable.

The broader outlook suggests that cumulative rate cuts in the current cycle could reach 150bps, particularly if the terminal repo rate settles closer to 5%. A supportive rate environment could drive 10-year bond yields down to nearly 6%, the report notes.

However, the path to deeper cuts is not without risks. Potential headwinds include:

Weather-related disruptions impacting food prices.
Sticky core inflation components.
Prolonged pause in U.S. Federal Reserve rate cuts.

Nonetheless, the easing of geopolitical tensions, reduced import tariffs’ inflationary impact, and weaker global demand could give the RBI enough comfort to maintain an accommodative stance into 2026.

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