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Inflation expected to remain below 4 percent for the next two quarters: Report

New Delhi: India’s core inflation is expected to remain below the Reserve Bank of India’s (RBI) target of 4 per cent over the next two quarters due to a favourable base and easing food product prices, a new report said.

The recent moderation in inflation is mainly driven by moderation in food prices and Consumer Price Index (CPI) inflation has fallen to 2.1 per cent in June 2025, the lowest since January 2019, CareAge Ratings reports.

The report said inflation is likely to remain low in the near term, but it may start rising from the third quarter and cross the 4 per cent mark in the last quarter of the current fiscal year as the base effect subsides.

For FY26, the ratings agency expects Consumer Price Index (CPI) inflation to average around 3.1 per cent, lower than the RBI’s forecast of 3.7 per cent. “However, due to the low base in FY26, inflation is projected to moderate to around 4.5 per cent in FY27,” the report said.

The sharp decline in inflation in June was driven by deflation in food and beverages, including vegetables, pulses, spices and meat. However, prices of edible oils and fruits continued to see double-digit inflation. According to the report, high edible oil prices remain a concern due to India’s dependence on imports and the recent cut in customs duty and good kharif sowing will help ease pressure in the coming months. The RBI may keep rates on hold in the upcoming August monetary policy meeting, the report said.

With the US Federal Reserve’s accommodative stance and the dollar strengthening, the central bank may adopt a wait-and-watch approach to assess the impact of earlier rate cuts. Despite global challenges, India’s external sector remains strong with foreign exchange reserves at $695 billion and the current account deficit is estimated at just 0.9 per cent of GDP in FY26.
The report said that better exports of services will continue to support the external sector.

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