RBI Likely To Ease Interest Rates, Revises Inflation Target For FY26 To 3.7%; Average Inflation For April & May,Inches Closer To This Estimate

The Reserve Bank of India is likely to ease interest rates. The RBI has revised its inflation target for FY26 down to 3.7 percent. For the first quarter of FY26, 2.9 percent is the inflation projection, and the average inflation for April and May is coming close to this estimate.

According to a report titled Ionic Wealth by Angel One, the country may require additional liquidity in the second half of the financial year 2025-26. The report also noted that they reiterate their view that the RBI will likely ease more after a brief pause, and in H2, more liquidity injection will be required.

In May 2025, India's Consumer Price Index (CPI) inflation eased significantly to 2.82 percent year-on-year, down from 3.16 percent in April 2025. Inflation dropped by 35 basis points on a month-on-month basis. 4.28 percent was where the Core Inflation declined compared to 4.36 percent in the previous month.

Easing food prices was one of the major contributors to the decline in inflation. Food inflation came down to 0.99 percent in May from 1.78 percent in April. The steep fall in vegetable prices was a significant factor behind this moderation. It dropped 13.7 percent year-on-year. Aided partly by a high base effect, pulses also witnessed a price decline of 8.2 percent year-on-year. Cereal prices showed a slower rise amidst growth.

The slow rise consisted of 4.7 percent in May as compared to 5.4 percent in April. Improved supply conditions and a strong rabi harvest amidst favorable sowing conditions for the kharif season were responsible for the overall moderation in food prices.

However the report warned that while domestic inflation drivers are managed well, geopolitics and trade deals, which are global factors, could influence future inflation trends.