RBI Sees Retail Inflation Hitting Multi-Year Lows

Retail inflation in India is projected to dip to record lows this July, with projected FY26 averages falling beneath RBI forecasts. This creates a favorable backdrop for policymakers, offering room for a more accommodative monetary stance. With food and fuel prices easing and core inflation stabilizing, consumer purchasing power is poised to recover—potentially emboldening demand in discretionary sectors like autos, housing, and non-essential retail.

For corporate India, lower input inflation translates into thinner cost pressures and healthier margins, especially in consumer goods and FMCG companies with extensive supply chains. Banks and NBFCs might respond with lower lending rates, triggering a pickup in credit demand from both retail and agricultural segments. Meanwhile, industrial sectors stand to benefit from improved cost dynamics and demand stability, underpinning capex cycles.

However, the RBI’s decision matrix will balance growth and risk. With global headwinds and external volatility still present, the central bank may opt for gradual policy adjustments. But if inflation remains benign, a rate cut in H2 2025 is no longer a distant prospect. That possibility is likely to capture investor attention, lifting sovereign bond markets and extending positive sentiment to inflation-sensitive equity sectors.