Key Points

Food Inflation declined to 0.99 per cent during May, which is the lowest since October 2021. This is the seventh month in a row that food inflation has registered a decline as the agricultural output has been on the rise.

The significant decline in inflation during the month is mainly attributed to the decline in inflation of pulses, vegetables, fruits, cereals, household goods & services, sugar, and eggs, according to the official statement.

Inflation also declined due to a moderation in fuel prices, with international prices of crude oil coming down during the month.

The RBI has also revised its inflation outlook for 2025-26 downwards from the earlier forecast of 4 per cent to 3.7 per cent, Reserve Bank Governor Sanjay Malhotra said on Friday.

CPI inflation for the financial year 2025-26 is now projected at 3.7 per cent, with Q1 at 2.9 per cent, Q2 at 3.4 per cent, Q3 at 3.9 per cent, and Q4 at 4.4 per cent.

The RBI Governor pointed out that Inflation has softened significantly over the last six months from above the tolerance band in October 2024 to well below the target, with signs of a broad-based moderation. The near-term and medium-term outlook now gives us the confidence of not only a durable alignment of headline inflation with the target of 4 per cent, as exuded in the last meeting, but also the belief that during the year, it is likely to undershoot the target at the margin.

While food inflation outlook remains soft, core inflation is expected to remain benign with easing of international commodity prices in line with the anticipated global growth slowdown, Malhotra said.

The sharp decline in inflation has enabled the RBI to go in for a 50 basis points cut in the repo rate from 6 per cent to 5.5 per cent to spur growth in the economy in the monetary policy review last week.

The RBI also announced a 100 basis point cut in the Cash Reserve Ratio (CRR), from 4 per cent to 3 per cent, to be implemented in four tranches of 25 bps each. The step is expected to inject Rs 2.5 lakh crore into the banking system, boosting liquidity and supporting credit flow.

The RBI Governor said the repo rate has now been reduced 100 basis points in quick succession since February this year, and hence, this leaves very limited space for the RBI, as a result of which the monetary policy stance has been changed from accommodative to neutral. This will enable the RBI to keep a close watch on the overall growth-inflation dynamics.

- IANS