Economists see inflation staying soft through FY26; rate cut window widens

India’s retail inflation fell to 3.16% in April — the lowest year-on-year (YoY) print since July 2019 — with economists across the board now expecting inflation to remain soft through FY26, opening space for rate cuts.The April print marked the sixth consecutive monthly decline in headline inflation, helped by a steep drop in vegetable and pulse prices. Food inflation cooled sharply to 1.78% from 2.69% in March, while rural and urban inflation dipped to 2.92% and 3.36%, respectively.ALSO READ | India’s retail inflation drops to 3.16% in April, lowest in over five yearsSakshi Gupta, Vice President and Senior Economist at HDFC Bank, noted that April’s figure was close to their forecast of 3.11%, adding, “Continued decline in cereals and pulses is encouraging and bodes well for future CPI prints. We expect inflation to stay between 3-3.2% for the next two months.”She projected FY26 CPI at 3.7%, with a terminal repo rate of 5.5% and two rate cuts — one each in June and August.ICRA Chief Economist Aditi Nayar flagged a likely dip in June inflation and expected FY26 CPI at 3.5%, well below RBI’s 4% target. “That opens up space for rate cuts,” she said, pencilling in a 75 bps cut in this cycle, starting with a 25 bps reduction in the upcoming policy.Anubhuti Sahay of Standard Chartered Bank also said Q1FY26 inflation might undershoot RBI’s forecast, citing a benign food inflation trajectory and falling global commodity prices. “We expect average FY26 CPI at 4%, with a downside risk. If growth decelerates, we might see further cuts,” she said, maintaining a terminal repo rate view of 5.5%.ALSO READ | US inflation slows in April despite tariffs, down 0.1% from MarchDevang Shah, Head of Fixed Income at Axis Mutual Fund, too expects softer inflation over the next two months. “Looking at the CPI trajectory, a 35 bps rate cut is given,” he said, noting that global cues would also influence domestic bond markets.Economists, however, cautioned that seasonal spikes in vegetable prices remain a risk. But for now, the sharp and broad-based cooling in prices has opened the door for the RBI to consider policy easing — especially as inflation appears likely to stay below its 4% target in the near term.(Edited by : Shoma Bhattacharjee)

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