The Reserve Bank of India (RBI) is likely to resume interest rate cuts after a temporary pause, as more liquidity may be required in the second half of FY2025–26, according to a report by Angel One, cited by Business Today (BT). This follows a downward revision in the RBI’s inflation forecast to 3.7 per cent for FY26, with headline consumer inflation (CPI) in May 2025 cooling to 2.82 per cent—the lowest in over six years. “We reiterate our view that a) the RBI will likely ease more after a brief pause, and b) more liquidity injection will be required in H2,” said the Angel One “Ionic Wealth” report, quoted by BT. Why Is the RBI Poised to Act? 1. Falling Inflation Gives Room to Cut May’s CPI inflation of 2.82 per cent, down from 3.16 per cent in April, aligns well with the RBI’s Q1 forecast of 2.9 per cent. The 35-basis point drop is attributed to sustained food price moderation and improved supply-side conditions. Notably, core inflation also edged down slightly to 4.28 per cent, reflecting broader disinflationary trends. “Food inflation dropped to just 0.99 per cent in May,” the report noted, “driven by a 13.7 per cent decline in vegetable prices and an 8.2 per cent fall in pulses, aided by a strong rabi harvest and favourable kharif sowing.” 2. Mid-Year Liquidity Needs Are Rising While the central bank has paused its rate-cutting cycle temporarily, Angel One anticipates more monetary easing in H2 FY26, as systemic liquidity needs may rise due to seasonal fiscal spending patterns and market borrowing requirements. 3. Global Uncertainty Still a Risk The report cautions, however, that external factors—such as ongoing geopolitical tensions and fluctuating global commodity prices—could threaten India's stable inflation outlook. “Some uncertainty lingers from imported inflation,” it added, suggesting the RBI may tread carefully despite a favourable domestic setup. Implications for Growth and Markets Lower inflation and potential rate cuts are expected to provide a boost to consumption and investment, key drivers of India’s economic growth. The latest data strengthens the RBI’s case for supporting growth without the risk of breaching its medium-term inflation target of 4 per cent. Financial markets may also respond positively if liquidity is infused and borrowing costs decrease, especially in rate-sensitive sectors such as banking, real estate, and automobiles. Summary: Key Data Points May 2025 CPI Inflation: 2.82 per cent (vs 3.16 per cent in April) FY26 RBI Inflation Forecast: 3.7 per cent Food Inflation: Fell to 0.99 per cent Vegetable Prices: Declined by 13.7 per cent y-o-y Core Inflation: Eased to 4.28 per cent from 4.36 per cent Cereal Price Rise: Slowed to 4.7 per cent from 5.4 per cent With the RBI’s inflation mandate under control and growth emerging as a renewed policy priority, further monetary easing in the latter half of FY26 appears likely, barring fresh external shocks. Policymakers are expected to monitor evolving conditions closely before resuming the rate-cutting cycle. As per Angel One, “India’s inflation trajectory gives the central bank space to manoeuvre, but global risks must not be ignored.