CPI Inflation Falls to 2.1% in June: Will RBI Cut Interest Rates Again?

India's retail inflation dropped sharply to 2.1% in June 2025, marking a six-year low, according to data released by the National Statistical Office (NSO) on July 14. The drop was mainly due to falling food prices and a favorable base effect.

This marks the eighth consecutive month of declining Consumer Price Index (CPI) inflation, raising hopes for a possible cut in policy repo rates by the Reserve Bank of India (RBI) in the coming months.

What's Driving the Inflation Drop?

CPI inflation fell from 2.82% in May to 2.1% in June in 2025, the lowest level in over six years. Food prices fell by 1.06% compared to last year, led by a 19% year-on-year drop in vegetable prices, the sharpest since December 2022.

Prices of pulses dropped by 11.8%, the biggest fall in over seven years, while meat and fish prices also declined for the third straight month. Cereal inflation also cooled to a 41-month low of 3.7%, thanks to better crop production.

Will RBI Cut The Rates Again?

With inflation continuing to fall and staying well below the RBI's medium-term target of 4%, the central bank may have more room to lower interest rates. So far in 2025, the Monetary Policy Committee (MPC) has cut the policy repo rate by 100 basis points, bringing it down to 5.5%. However, in June, the RBI shifted its stance to 'neutral', indicating caution despite the falling inflation.

"While global commodity prices are broadly expected to remain benign, we cannot rule out intermittent spikes in the midst of geopolitical conflicts. With food inflation remaining muted and demand-side pressure on inflation contained, we expect average CPI inflation of 3.5% for FY26. The RBI has already front-loaded the rate cuts, anticipating moderation in inflation; hence, we do not expect further rate cuts, unless economic growth weakens materially," said Rajani Sinha, Chief Economist at CareEdge Ratings.

"With core inflation components such as health and education still elevated above 4%, any monetary accommodation must be carefully sequenced to avoid reigniting price pressures in non-food sectors. The RBI is unlikely to act on the basis of a single data point.

But if headline inflation remains below 4%, soft private consumption persists, and there is greater clarity on global developments, a rate cut cannot be ruled out. The tone of upcoming monetary policy statements will be critical to watch," said Mahendra Patil, Founder and Managing Partner, MP Financial Advisory Services LLP.

"With Q1FY26 average CPI now at 2.67%, well below the RBI's earlier projection of 3.3%, it materially shifts the base trajectory downward for the remainder of the fiscal. Given this trajectory, we now expect FY26 average inflation to undershoot the RBI's 3.7% forecast, potentially settling in the 3.3-3.5% range, assuming normal monsoon progression and no crude shocks.

While this print gives the RBI significant room to manoeuvre, we do not expect an immediate policy pivot in August. The MPC is likely to hold rates and wait for stronger growth signals, particularly from investment and export activity, before calibrating further action," noted Arsh Mogre, Economist, PL Capital.

RBI's Take on Rate Cuts

"We're in a neutral stance, which means we can move in either direction depending on the outlook, not just the current data. One cannot say inflation is more important than growth, it's always the mix of both factors," said RBI Governor Sanjay Malhotra in an interview to CNBC-TV18.

"The full-year inflation is expected to stay below 3.7%, well within the RBI's 2-6% tolerance band," added RBI Governor Sanjay Malhotra.