Key Takeaways

• India’s annual inflation rate fell to 3.34% in March, according to the Ministry of Statistics and Program Implementation.
• this is the fifth consecutive month of decline, driven by softening food prices.
• The Reserve Bank of india (RBI) recently cut its policy rate to 6% amid concerns about economic growth.
• Economists anticipate further rate cuts to stimulate the economy.

Inflation breakdown

India’s annual inflation rate has shown a steady decline, with the latest figures indicating a positive trend for the nation’s economy. The Ministry of Statistics and Programme Implementation reported that the annual inflation rate for March came in at 3.34%, lower than the anticipated 3.6% and below February’s 3.61%.

Food inflation, a critical component of the Consumer Price Index (CPI), reached 2.69%. Declines in vegetable, spice, egg, and pulse prices primarily drove this decrease.

RBI’s Response: Rate Cuts

The recent inflation data follows the RBI’s decision to implement a second consecutive interest rate cut on April 9, setting the policy rate at 6%. This move aims to address growth concerns in India, the world’s fifth-largest economy.

The RBI projects inflation at 4% for the financial year ending March 2026, which is the midpoint of its target range of 2% to 6%. Though, core inflation, excluding food and fuel, rose to a 15-month high of 4.1% in February, largely due to increased gold prices.

There has been a substantial and broad-based seasonal correction in vegetable prices. The uncertainties on rabi [winter] crops have abated considerably … Along with robust kharif [autumn] arrivals, this is expected to set the stage for a durable softening in food inflation.
Reserve Bank of India

More Rate Cuts on the Horizon?

The latest inflation figures strengthen the argument for further rate cuts by the RBI to stimulate economic growth, especially considering the impact of U.S.tariffs. The RBI’s monetary policy decisions are influenced by both domestic economic conditions and global factors, including trade policies and international economic trends.

Joe Maher, an economist at Capital Economics in London, stated:

The larger-than-expected fall in Indian consumer price inflation in March, which pushes it further below the Reserve bank of India’s (RBI’s) 4% target, reinforces our view that the central bank will loosen monetary policy by a bit more than the consensus expects over the coming months.
Joe Maher, Economist at Capital Economics

RBI Governor Sanjay Malhotra indicated a shift from a neutral to an accommodative stance to stimulate the economy through lower interest rates after the policy meeting last week.

Economic Growth and Tariffs

India’s GDP grew by 6.2% in the fourth quarter of 2024,which was below expectations. The economy is estimated to have grown by 6.5% in the financial year ending March 2025,a important decrease from the 9.2% growth the previous year.

HSBC estimates that “reciprocal” tariffs will directly reduce India’s full-year growth by 0.5 percentage points for the financial year ending March 2026. Indirect effects, such as decreased export volumes and weaker foreign direct investment, could further dampen growth.

India faced a 26% levy from U.S. President Donald Trump’s “reciprocal” tariffs. These duties were suspended for 90 days last week, leaving a 10% baseline tariff.