India’s Inflation Seen Averaging 2.5% In H2 2025, Below RBI's 3.5% Estimate: HSBC Report

New Delhi: India inflation is likely to average around 2.5 per cent for the next six months, lower than the RBI's forecast of 3.5 per cent, an HSBC report said on Friday.

The June inflation print is trending a tad lower than May levels.

“We think that the low inflation print can be attributed to the high base of last year. Vegetable prices in the first 10 days of June have risen in the range of 0-13 per cent,” according to HSBC Global Research.

The monsoon season started early, but the rains have slowed since. That said, sowing of the summer crop is progressing well, particularly for rice and pulses.

This, along with a strong cereal production from last year means that granaries are full and the government can choose to slow release stocks to control cereal inflation over a 2-year horizon, the report noted.

At 2.8 per cent, headline and core inflation (excluding gold) are well below the central bank's 4 per cent target, while food prices continue to fall.

Food prices remained in deflation for a fifth month, down 0.2 per cent (month-on-month). The sequential momentum in the prices of fruits, egg, fish, meat, and sugar were benign too.

Higher gold prices keep core inflation elevated. Gold has a weight of 1.1 per cent in the CPI basket, and its price has been rising 30 per cent+ in recent months. Excluding gold, core inflation came in at 3.5 per cent YoY.

“Looking ahead, if gold prices were to fall in 2H2025 (as our commodities team forecasts), core inflation could fall quickly. Add to this a stronger INR compared to early 2025, falling commodity prices, imported disinflation from China, and softer growth than a year ago - all indicating that core inflation is likely to remain soft in the coming months,” the report mentioned.

The RBI has already delivered 100bps in rate cuts this year along with a 100bp reduction in the cash reserve ratio.

“We forecast a pause in the August and October meetings. However, we believe the RBI will deliver a final 25bp rate cut in the December meeting taking the repo rate to 5.25 per cent by end-2025,” the HSBC report said.

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