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Informist, Wednesday, Apr. 30, 2025

NEW DELHI – BofA Securities has lowered its India CPI inflation forecast for 2025-26 (Apr-Mar) by 30 basis points to 3.8%, thanks to lower food inflation and falling energy prices. For FY27, BofA sees inflation rising to 4.5%.

 

CPI inflation fell to a 67-month low of 3.34% in March. Inflation averaged 4.6% in FY25, a six-year low, as food inflation moderated and core inflation remained low. Headline inflation in recent months was driven by high vegetable prices, which have since moderated.

 

If inflation falls to 3.8% in FY26, it would be the first sub-4% annual print in seven years. The last time annual inflation was below 4%--the Reserve Bank of India's medium-term target--was in FY19. BofA's inflation forecast for the current year is also 20 bps lower than the RBI's latest projection of 4% for FY26.

 

"After an extended period of above average inflation, India finally is witnessing a durable alignment of inflation with its inflation target," said Rahul Bajoria, head of India economic research at BofA Securities. "The loss of momentum in headline CPI appears broad based, and even if we see some structured increase in prices of durable goods and services come through, the probability of a tolerance band breach appears low."

 

Bajoria said that inflation is likely to stay below 4% for the next two to three quarters, because of falling input prices, weak demand, and seemingly robust food output. "With summer months so far not showing any material signs of a price increase in perishables, food inflation may stay low for some time given adequate supply and high base effects, keeping headline inflation below 4% for most of 2025," he said in the report.

 

A factor that can push inflation even lower in FY26 is the ongoing decline in energy prices, particularly crude oil, Bajoria said. BofA, however, has not factored in a cut in retail fuel prices in the baseline projections.

 

BofA expects core inflation--which excludes volatile food and fuel prices--to rise this year, but still remain under control. Core inflation rose to a 16-month high of 4.1% in March mainly because of a rise in gold and silver prices.

 

Bajoria sees core inflation rising to 4.2% in FY26, up from 3.5% in FY25, and then moderating to 4.0% in FY27. "...after almost 15 months of core CPI being below 4%, we should see core CPI being higher than headline for an extended period, but we do not see this necessarily as a sign of inflationary pressures coming back, rather more as underlying core price pressures slowly normalizing," Bajoria noted.

 

BofA expects the RBI to continue lowering interest rates, and sees another 50 basis points of rate cuts in next two meetings. There are also risks of more rate cuts emanating from a potentially larger growth slowdown, BoFA said. The RBI's Monetary Policy Committee lowered the repo rate by 25 bps earlier this month to 6.00%, having first cut interest rates in February.  End

 

Reported by Shubham Rana

Edited by Tanima Banerjee

 

 

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