India's CPI inflation drops below 4% target

India's consumer price index (CPI) inflation fell to 3.61% in February. This is the first time in six months that it has gone below the Reserve Bank of India's (RBI) target of 4%. A Morgan Stanley report forecasts that CPI inflation will average 4% in the financial year 2025-2026. The report suggests that this lower inflation could lead to more cuts in interest rates by the RBI. It now predicts a total easing of 75 basis points, compared to the previous estimate of 50 basis points. The easing is mainly driven by decreasing food prices. Morgan Stanley noted that the inflation data for January and February showed a faster decline than expected. Food inflation has been a significant factor, but forecasts for FY26 suggest improvements in food production. This could help stabilize prices. Despite economic growth, credit growth is slow at 11%. This situation reduces concerns about financial stability and suggests that further easing of regulations and liquidity may occur. Core inflation, which excludes food and energy, is expected to remain around 4%. Overall, the report indicates that the easing trend in food prices will likely help maintain lower CPI rates. This provides more room for the RBI to consider deeper rate cuts in the coming months.