Key Points

WPI-based inflation has been steadily easing since March and hit a 14-month low of 0.39 per cent in May.

There was a 0.26 per cent decline in prices of food items while the cost of fuels such as petrol and diesel fell by 2.68 per cent during June compared to the same month of the previous year, resulting in the overall month-on-month inflation rate turning negative.

Meanwhile, the country's inflation rate based on the Consumer Price Index (CPI) has declined to 2.82 per cent in May this year compared to the same month of the previous year. This is the lowest level of retail inflation since February 2019.

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 recently.

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 month.

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.

These measures are aimed at spurring growth as easing inflation has given the RBI headroom for a soft money policy that reduces interest rates, making loans for investments and consumers cheaper and also more easily available.

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.

- IANS