RBI rate cut odds soar as inflation dips below 4% target in February

India’s consumer inflation took a sharp dive to 3.61% in February, slipping below the Reserve Bank of India’s (RBI) 4% target for the first time in six months, fanning hopes of another rate cut as early as April. The cooldown, down from January’s 4.26%, was powered by a rare drop in vegetable prices and easing food inflation, though stubborn pockets of price pressure—like a 30.4% spike in onion costs—kept investors on their toes.

Data released on Wednesday showed vegetable inflation flipping from a lofty 11.4% in January to a 1% decline last month, thanks to a flood of fresh winter produce. Pulses and spices followed suit, offering relief to the average Indian thali. Yet, the picture wasn’t all rosy: fruits and oils clocked double-digit inflation at 14.8% and 16.3%, respectively, while wheat prices crept up, hinting at supply snags that could worsen if heatwaves or unseasonal rains hit.

“The data is signalling a shift from base-effect-driven moderation to genuine price cooling,” said research firm Acuité Ratings & Research Limited in a note, pointing to the broader cooling trend.

Core inflation, stripping out volatile food and fuel, ticked up slightly to 3.9% from 3.7%, but falling global oil prices kept the lid on bigger jumps.

Acuité Ratings said that the lower inflation numbers strengthen the case for another 25-bps rate cut in the RBI’s April monetary policy committee as it eyes growth.

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Sujan Hajra, chief economist at investment services company Anand Rathi Group, echoed the optimism, pegging February’s 3.6% print well below market bets of 4%. “The RBI is likely to maintain its easing cycle,” he said.

Meanwhile, Radhika Rao, economist at DBS Bank, said that the lower inflation reading could help the MPC to ease rates as early as next month.

The central bank, fresh off a 25-basis-point repo rate trim and liquidity boosts to ease a cash crunch, now faces a slowing economy amid global trade jitters and rising protectionism.

Overall, analysts see the stars aligning for another quarter-point cut at the RBI’s April meeting, with the quarterly CPI average likely undershooting the bank’s 4.4% forecast. For now, India’s inflation hawks might take a backseat—but with onions still stinging and weather risks looming, the respite could prove fleeting.