India’s consumer price index (CPI) inflation cooled sharper than expected to 3.61% in February 2025, which takes the indicator to a seven-month low. CPI is now well within RBI’s main inflation target of 4%, warranting a possibility of yet another 25 bps rate cut from the central bank in the upcoming April 2025 policy. If that were the case, a repo rate cut would lead to further revision in home loan EMIs and fixed deposit rates by banks, but expert believes the transmission could be delayed.

Data from the Ministry of Statistics & Programme Implementation revealed that year-on-year inflation rate based on All India Consumer Price Index (CPI) for the month of February, 2025 over February, 2024 is 3.61%. This would be a 65 bps drop from January 2025 rate of 4.26%.

In February 2025, food inflation eased to 3.75%, down by 222 basis point from January 2025 print. The ministry said, “The food inflation in February, 2025 is the lowest after May, 2023.”

The top top five items showing highest year on year Inflation at All India level in February 2025 are coconut oil (54.48%), coconut (41.61%), gold (35.56%), silver (30.89%) and onion (30.42%).

While the five items with the lowest inflation: The key items having the lowest year-on-year inflation in February 2025 are ginger (-35.81%), jeera (-28.77%), tomato (-28.51%), cauliflower (-21.19%), garlic (-20.32%).

Aditi Nayar, Chief Economist & Head of research & Outreach said that the CPI inflation declined sharper than expected to a seven-month low of 3.6% in February 2025 from 4.3% in January 2025, appreciably below the mid-point of the MPC’s medium-term target range, led by a welcome cooling in food inflation.”

However, ICRA’s economist believes that the sequential uptick in vegetable inflation in March 2025 is likely to prevent a further softening in the food and beverages inflation print in the month, after the substantial cooling seen over the past four months.

Such could push the CPI inflation print mildly to ~3.9-4.0% in the next month. Nayar added, “Overall, the CPI inflation is now expected to average at 3.9% in Q4 FY2025, well below the MPC’s projection of 4.4% for that quarter.”

Meanwhile, Dipanwita Mazumdar, Economist, BoB explained that headline CPI got the necessary comfort from food inflation at a crucial juncture when uncertainty on global inflation predominated. High-frequency retail price data is still showing a deceleration in Mar’25. Our in-house BoB ECI is tracking at 1.4%, on a YoY basis for the first 11 days of Mar’25. The trajectory of TOP (Tomato, Onion and Potato) albeit being in the negative territory has shown some degree of upward correction. However, this would not be a cause of concern as of now since there is still a considerable gap between retail and wholesale prices for these items which hints at further transmission of lower wholesale prices to retail.

Thereby, Mazumdar added, “Overall, we believe CPI is likely to undershoot RBI’s target of 4.4% in Q4, which will open more policy space for easing by RBI. We do not see major risks lurking for food inflation. However, one needs to be vigilant on account of hotter than expected summer, stickier international edible oil prices and risks from global inflationary policies.”

“As of now, the tide is in favour of a lower headline print emanating from a better Rabi harvest, better supply management strategies of the government, rangebound commodity prices, benign energy price outlook and lesser dependence of CPI basket in terms of imported commodities. Overall, we expect CPI to settle at 4.6% in FY25, with our Q4 number at 3.8%,” Mazumdar lastly said.

How Does February CPI Inflation Impacts Home Loans, FD Rates?

Nayar explained that the Feb 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, dependant in large part on the next GDP growth print for Q4 FY2025.

Nevertheless, she added, “we are apprehensive that tight liquidity conditions may delay transmission of policy rate cuts to bank deposit and lending rates.”