&w=3840&q=100)
Inflation undershoots, yet risks remain: Rate cuts may spark volatility
premium
Listen to This Article
India's Consumer Price Index (CPI) inflation eased to 2.1 per cent year-on-year in June 2025, down from 2.82 per cent in May. For the April–June quarter, CPI inflation averaged 2.7 per cent, lower than the Reserve Bank of India's (RBI's) projection of 2.9 per cent. This decline, largely driven by falling food prices, may offer near-term comfort to the Monetary Policy Committee (MPC). However, a forward-looking view suggests that a more cautious approach to interest rates is warranted.
We forecast CPI inflation to average 3 per cent in FY26, significantly lower than the 4.6 per cent recorded in FY25. In
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Hindu
25 minutes ago
- The Hindu
Net FDI in May 2025 down 98% to $35 mn on lower gross inflows & higher repatriation
Net foreign direct investment (FDI) inflows stood at $35 million in May 2025, 98% lower than the $2.2 billion seen in May 2024 and 99% lower than the $3.9 billion in April 2025, according to new data released by the Reserve Bank of India on Wednesday (July 23, 2025). Net FDI is the gross amount coming into India minus the money sent abroad by foreign companies operating in India (through repatriation or disinvestment) and the investments abroad made by Indian companies (outward FDI). The reason behind this reduction in net FDI flows was not only that gross FDI flows were lower in May 2025 than in both May 2024 and April 2025, but also because the quantum of repatriation was higher. According to the data, the gross FDI coming into India stood at $7.2 billion in May 2025, down 18% from the $8.7 billion in April 2025, and 11% lower than in May 2024. Simultaneously, the level of money sent out of the country by foreign companies operating here increased in May. Repatriations and disinvestment by foreign companies stood at $5 billion in May 2025, more than 200% higher than in April 2025 and nearly 24% higher than in May last year. Foreign investments made by Indian companies, at $2.1 billion in May 2025, were 34% lower than in April but 18.5% higher than in May last year.
Mint
25 minutes ago
- Mint
RBI highlights domestic resilience amid global headwinds
New Delhi: India's domestic economy held steady in June and July, showing resilience amid global macroeconomic uncertainty driven by geopolitical tensions and trade-related risks, the Reserve Bank of India said in its latest monthly State of the Economy report. The central bank said on Wednesday that improved prospects for kharif or monsoon crops, steady momentum in the services sector, and modest industrial growth supported overall activity. 'Domestic economic activity held up, with improving kharif agricultural season prospects, continuation of strong momentum in the services sector and modest growth in industrial activity,' RBI said, highlighting the economy's relative stability amid external headwinds. 'Headline CPI inflation remained below 4% for the fifth consecutive month in June, driven by deflation in food prices,' it added. Retail inflation based on the consumer price index (CPI) rose 3.54% in July, its lowest in 59 months, according to the latest data from the Ministry of Statistics and Programme Implementation). The 5.42% rise in food inflation in July was the lowest since June 2023, when it was 4.55%. To be sure, retail inflation has been below the 6% mark since September, remaining within the central bank's tolerance range of 2-6% for 11 consecutive months. Services sector output rose to a 10-month high in June, driven by higher sales and new order intakes, and positive demand trends. The seasonally adjusted HSBC India Services PMI Business Activity Index, compiled by S&P Global, rose to 60.4 in June, up from 58.8 in May, with the increase in export orders among the strongest in the series's history, according to the survey. RBI expects India's GDP to grow at 6.5% in 2025-26, lower than the 6.7% it had projected in April amid rising trade and policy volatility, including the potential impact of steep US tariffs, that could strain Asia's third-largest economy. RBI said in its latest report, published as part of its monthly bulletin, that liquidity in the banking system remained in surplus, which would facilitate faster transmission of the policy rate cuts to the credit markets. In June, RBI's Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. 'The external sector remained resilient, backed by ample foreign exchange reserves and a moderate external debt-to-GDP ratio,' RBI said. As of 31 March, India's external debt was $736.3 billion, representing a 10% year-over-year increase. External debt-to-GDP ratio has increased to 19.1% from 18.5% at the end of March 2024. An analytical article in RBI's latest bulletin said government interventions had helped cushion the impact of global crude oilprice swings on headline inflation. However, with rising import dependence on oil, the central bank underscored the need for both near-term strategies to manage price spillovers and a longer-term shift towards alternative fuels to ensure more stable and efficient domestic fuel pricing. "Empirical estimates suggest that a 10% rise in global crude oil prices could increase India's headline inflation by around 20 basis points on a contemporaneous basis,' RBI said. The State of the Economy report in RBI's monthly bulletin reflects the regulator's official stance, while other articles by RBI officials and economists represent the authors' views. Household inflation expectations, which had surged in the wake of the covid-19 pandemic and geopolitical disruptions, have largely remained elevated, noted another analytical article in RBI's latest bulletin. As per the article, while households consistently overestimate inflation, even during periods of low or stable inflation, this bias has begun to moderate since 2023-24. The analysis highlighted that perceived past inflation contributed to the stickiness of the expectations, though the role of actual inflation becomes more pronounced once outliers are adjusted. The article also underscored the success of India's flexible inflation targeting regime in anchoring expectations, with monetary policy interventions playing a critical role in maintaining stability. Flexible inflation targeting is a monetary policy framework that RBI adopted in 2016, under which the central bank is legally mandated to maintain price stability while supporting economic growth.
Economic Times
an hour ago
- Economic Times
Indian economy remained fluid amidst tariff policy uncertainties: RBI Bulletin
Synopsis Despite global economic uncertainties, India's economic activity remained stable in June and July, according to the Reserve Bank of India's Bulletin. The report highlighted positive prospects for the kharif agricultural season, sustained momentum in the services sector, and moderate industrial growth. Reuters Reserve Bank of India (RBI) India's economic activities held up during June-July amidst geopolitical tensions and tariff policy uncertainties, Reserve Bank's Bulletin said on Wednesday. An article on 'State of the Economy' in July Bulletin said the global macroeconomic environment remained fluid in June and July so far amidst geopolitical tensions and tariff policy uncertainties. "Domestic economic activity held up, with improving kharif agricultural season prospects, continuation of strong momentum in the services sector and modest growth in industrial activity," it bulletin also mentioned that headline CPI inflation remained below 4% for the fifth consecutive month in June driven by deflation in food prices. System liquidity remained in surplus to facilitate a faster transmission of policy rate cuts to the credit markets. The external sector remained resilient, backed by ample foreign exchange reserves and a moderate external debt-to-GDP ratio, it central bank, however, said the views expressed in the Bulletin article are of the authors and do not represent the views of the Reserve Bank of India.
