India’s retail inflation fell to a seven-month low of 3.61% in February, mainly due to a slower rise in food prices, triggering hopes of the Reserve Bank of India cutting interest rate for the second straight time.

The consumer price index-based retail inflation was at 4.26% in January and 5.09% in the year-ago period.

Food inflation eased to 3.75% in February, from  a 5.97% increase in January, data released by the National Statistics Office (NSO) showed.

"A sharp decline of 222 basis points is observed in food inflation in February 2025 in comparison to January 2025. The food inflation in February 2025 is the lowest after May 2023," it said.

The NSO said the significant decline in headline inflation and food inflation during February is mainly attributed to the decline in inflation of vegetables, egg, meat, and fish, pulses and products; and milk and products.

“The February 2025 CPI inflation print falling well below 4% has cemented the expectation of a back-to-back 25 bps rate cut in the April 2025 MPC meeting. This may be followed by another 25 bps repo rate cut either in the June 2025 or the August 2025 meetings, dependent in large part on the next GDP growth print for Q4 FY2025. Nevertheless, we are apprehensive that tight liquidity conditions may delay transmission of policy rate cuts to bank deposit and lending rates,” said Aditi Nayar, chief economist at ICRA.

The RBI, which has been mandated to keep retail inflation at 4% (+/- 2 per cent), has reduced the repo rate by 25 basis points last month. This was the first cut since the 2020 Covid outbreak.

The central bank is scheduled to announce the next set of bi-monthly monetary policy on 9 April.

Meanwhile, the Index of Industrial Production (IIP) grew at 5% in January, up from 3.2% in the previous month, according to the latest estimates released by MoSPI. This  growth was led by manufacturing and mining. 

"The IIP growth improved to a higher-than-expected 5.0% in January 2025, led by manufacturing and mining. The use-based data is less enthusing, with a sequential YoY pickup seen in only two segments (consumer non-durables and primary goods) amidst a slowdown in the other four," said Nayar.

"ICRA expects the IIP expansion to moderate to about 3-4% in February 2025 from 5% in January 2025," she added.