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Finance ministry suggests room for further rate cut as inflation remains below RBI's target

29 Jul 2025 Evaluate

With inflation being comfortably below the central bank's median target of 4 per cent, the finance ministry in its monthly review report has suggested that there is room for further easing of interest rate by the Reserve Bank of India (RBI). The report has noted that the retail inflation, based on Consumer Price Index (CPI), has remained below 4 per cent since February and it further declined to more than six-year-low of 2.82 per cent in the month of May. 

Since February 2025, the central bank has cumulatively reduced the short-term benchmark lending rate (repo) by 100 basis points. The RBI has projected headline inflation at 3.4 per cent for the second quarter of the fiscal year, while in the first quarter, actual inflation came below the target of the RBI. The report noted that ‘it appears likely that the full fiscal year inflation rate would undershoot the central bank's expectation of 3.7 per cent’. It further said global crude oil prices are expected to remain subdued as the OPEC plus group has indicated a larger-than-anticipated production hike. The group has indicated production hike of 5,48,000 barrels per day in August, meanwhile, it had increased the production in the previous months.

On the fiscal front, it noted that both the Union and state governments have maintained momentum in capital expenditure while adhering to consolidation goals. It added that despite the tax cuts the revenue sources remain buoyant, continuing on the double-digit growth path. Meanwhile, the government has mandated the RBI to ensure inflation remains at 4 per cent with a margin of 2 per cent on the either side.

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