India's Inflation Hits New Lows: Economic Outlook Brightens

Inflation in India continues its downward trend, hitting a six-year low of 2.1% in June. Nomura forecasts a further drop to below 2% in July, signaling a positive economic outlook. The Reserve Bank of India (RBI) is expected to make rate cuts as retail inflation stabilizes within the 2-6% range.

India's retail inflation rate has reached a new low, continuing its decline and offering relief to consumers, according to a report by Nomura. In June, inflation hit its lowest point in over six years at 2.1%, with predictions indicating it might fall below the Reserve Bank's 2% lower tolerance band by July.

The drop in headline inflation, which surpassed market expectations, was driven by a significant decrease in food prices, despite a seasonal rise in vegetable costs. Notable reductions were observed in pulses, cereals, and spices, while slight increases were noted for eggs, meat, fish, edible oils, and vegetables.

Amidst this backdrop of falling inflation, Nomura has revised its 2025-26 headline inflation forecast to 2.8%, down from 3.3%, considerably lower than the RBI's 3.7% forecast. Although a rate cut in the August meeting seems unlikely, Nomura anticipates 25 basis point reductions in October and December, leading to a terminal rate of 5.00%.