With retail inflation, based on the Consumer Price Index (CPI), for the month of April coming in at 3.16 per cent, Nomura said that this gives the Reserve Bank of India (RBI) ample space to focus on addressing growth concerns. “With inflation firmly below the RBI’s 4.0 per cent target in the immediate future, we believe there is ample space for the RBI to focus on addressing growth concerns. Hence, we expect a terminal repo rate of 5.00 per cent, which implies an additional 100bp in rate cuts by end-2025 (25bp in each of the consecutive meetings in June, August, October, and December),” said Sonal Varma, Chief Economist for India and Asia ex-Japan at Nomura.
On May 13, data released by the Ministry of Statistics & Programme Implementation showed that India’s retail inflation dropped to 3.16 per cent, down 18 basis points in comparison to March 2025.
RBI MPC’s April meeting – A recap
The RBI’s Monetary Policy Committee (MPC), at its April policy meeting, had delivered a dovish 25bp cut, with downgrades to its GDP growth and inflation forecasts (0.2pp each), a shift in its stance to accommodative (from neutral) and a commitment to keep liquidity in a surplus of 1 per cent of net demand and time liabilities.
While Nomura agreed with the RBI’s inflation outlook of 4 per cent for FY26, it maintained that the central bank’s GDP growth forecast (of 6.5 per cent) is optimistic and pegged growth to average 5.8 per cent, especially in an environment of global tariff-driven disruptions.
Sub-3% inflation ahead
Nomura said, “Daily data for the first 12 days of May suggest headline inflation is tracking ~2.8 per cent, with our food inflation trackers showing a contraction in the prices of pulses, cereals and edible oils.”
Per the analysis by the brokerage firm, the trend of a sharp MoM contraction in the vegetable CPI in the past six months is now nearing its end, and there could be some positive pick-up in May. Basis this, it pegged core inflation to moderate to around 4 per cent in May from 4.2 per cent in April. “Barring a smaller pick up in gold prices, other core categories should remain capped. Fuel inflation might also be a shade lower owing to a cut in subsidised kerosene prices,” it added.
Beyond May, Nomura’s estimates suggested that disinflation is likely to persist, even as seasonality dictates that vegetable prices will rise in the coming months. “Weak domestic demand, subdued manufacturing costs and the risk of dumping by China suggest a flare-up in core inflation currently seems unlikely. Our baseline view is that inflation could trend below 3 per cent in Q2 2025 and average 3.4 per cent in H2 2025, with the FY26 average at 3.9 per cent,” said Sonal Varma.