India’s inflation outlook is set to improve, with food inflation pressures expected to ease in the coming months due to a strong kharif harvest, lower vegetable prices, and positive prospects for the rabi crop, Reserve Bank of India Governor Sanjay Malhotra said.
His comments, published in the minutes of the Monetary Policy Committee (MPC) meeting held from 5 to 7 February, highlight optimism about price stability and economic growth.
In January, India's consumer price index (CPI) inflation fell to a five-month low of 4.31 per cent, down from 5.22 per cent in December.
The decline was attributed to a seasonal correction in vegetable prices and a steady supply of key food items. Malhotra noted that this trend is likely to continue, reinforcing confidence in a downward trajectory for inflation.
The RBI governor, who voted for a 25-basis-point cut in the repo rate, said a lower policy rate would be more appropriate at this stage, given that inflation is expected to align with the target.
He also underscored the importance of a forward-looking approach in monetary policy.
He added that fiscal measures announced in the Union Budget, particularly those supporting agriculture and fiscal consolidation, would further help stabilise prices and anchor inflation expectations over the medium term.
The Monetary Policy Committee unanimously decided to cut the repo rate—the benchmark lending rate—by 25 basis points to 6.25 per cent.
The committee also retained its neutral stance, allowing room to adjust to future economic conditions.
Malhotra said the combination of monetary easing, a strong agricultural sector, and growth-focused measures in the budget would support household consumption, housing investment, and capital expenditure, further strengthening aggregate demand.
Despite the positive outlook, Malhotra cautioned that rising uncertainties in global financial markets and trade policies, along with potential challenges from extreme weather events, could pose risks to both inflation and growth.
He stressed the need for vigilance in monitoring these external and domestic factors while maintaining a flexible policy stance.
RBI Deputy Governor Rajeshwar Rao echoed Malhotra’s views, saying the inflation outlook appears more benign.
He noted that a correction in food inflation is necessary for a sustained decline in overall inflation and that recent data signals a promising rabi season.
With kharif market arrivals stabilising and seasonal vegetable price corrections underway, food inflation pressures should ease significantly in the coming months.
He also pointed out that core inflation, which excludes food and fuel prices, is expected to remain subdued.
At this juncture, Rao said, with headline inflation moving closer to the RBI’s target of 4 per cent, there is now greater scope to focus on economic growth.
He supported the repo rate cut, stating that a looser monetary policy would help balance growth concerns while ensuring inflation remains under control.
External MPC member Saugata Bhattacharya also backed the 25-basis-point rate cut, calling it an appropriate policy response.
He expressed cautious optimism about the continued decline in inflation and said the inflation-growth trade-off now leans in favour of growth.
He warned that if policy rates remained too high, they could become overly restrictive, dampening growth momentum.
Another external MPC member, Ram Singh, said that with the demand boost from the 2025 Union Budget, a rate cut along with sufficient liquidity measures would help reduce investor risk premiums, thereby encouraging private investment.
This, he argued, would support economic expansion and sustain growth momentum.
MPC member and RBI Executive Director Rajiv Ranjan described the February rate cut as a rational and necessary step. He said confidence in the disinflationary path had grown, making the case for monetary easing stronger.
Nagesh Kumar, another external member of the MPC, highlighted the role of fiscal policy in supporting economic growth.
He pointed to sustained public investment and income tax concessions in the 2025-26 Union Budget, which aim to boost disposable incomes and stimulate consumption. These measures, he said, complement monetary policy in driving economic expansion.
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