India's retail inflation slips to over 5-year low, opens door to more rate cuts

India's retail inflation slipped to a more-than-five-year low as food prices continued to moderate, creating room for deeper central bank rate cuts amid fears the US-China trade war may hit global growth.

Annual retail inflation in March eased to 3.34%, below economists' estimate of 3.60%. The print was the lowest since August 2019, the government said in a statement. February retail inflation was 3.61%.

"Retail inflation is getting a repeated breather from a softer food inflation," amid prospects of better farm output, said Dipanwita Mazumdar, economist at Bank of Baroda.

The main driver for lower inflation prints has been food prices, which have seen a sharp reversal in recent months from eye-watering levels most of last year.

In March, food inflation eased to 2.69% from 3.75% in the previous month. Food inflation in March was the lowest since November 2021.

Vegetable prices fell 7.04% year-on-year, compared with an 1.07% increase in February.

Last week, the Reserve Bank of India (RBI) lowered its key policy rate for a second consecutive time, signaling more cuts in the coming months to boost domestic demand. It also softened its monetary policy stance and cut the GDP growth estimate for the current fiscal year to 6.5% from 6.7%.

The central bank, however, warned that lingering global market uncertainties and recurrence of adverse weather-related supply disruptions pose upside risks to the inflation trajectory. It forecast retail inflation of 4% for the current fiscal year, assuming a normal monsoon for the year.

"Based on domestic factors alone we see space for another two rate cuts minimum in remainder of 2025," said Gaura Sen Gupta, economist at IDFC First Bank.

"We don't rule out the possibility of a third rate cut, if global growth conditions weaken further."

RBI's monetary policy panel will meet next in June, ahead of the fresh July deadline for lifting the pause on reciprocal tariffs by the United States.

India expects to receive above-average monsoon rains in 2025, raising expectations of higher farm and economic growth.

Prices of cereals rose 5.93% against a 6.1% increase in February, while those of pulses fell 2.73% compared to a 0.35% fall in the previous month.

Core inflation, which excludes volatile items such as food and energy and is a better gauge of domestic demand, rose slightly to 4.1% in March from 3.9% to 4% in the previous month, according to two economists.