India's inflation rate dips to cooler-than-expected 3.61% in February, below central bank's target

India's inflation rate in February fell to a lower-than-expected 3.61% in February as vegetable prices cooled, the country's Ministry of Statistics and Programme Implementation said Wednesday.

Economists polled by Reuters had expected a reading of 3.98% for the period. This is first time since last summer that inflation has come in below the RBI's target of 4% and marks the lowest monthly print since July 2024.

Food inflation, which is a key constituent of the country's CPI, hit 3.75%, with vegetable prices prices dropping by an annual 1.07%, compared with a 11.35% hike in January. Prices for pulses likewise contracted by 0.35% in February, versus a 2.59% hike in in the previous month.

Price growth for cereals and products meanwhile eased to 6.1% in February, little changed from the 6.24% of January.

In a note on March 5, Bank of America analysts flagged that vegetable prices in particular have fallen sharply since October given higher supplies, especially for potatoes and tomatoes. 

"We do expect the correction in vegetable prices to start reversing, possibly as early as March, with risks from heatwaves and weather-related disruptions to crops," they added.

The dip in inflation and slowing growth in the world's fifth-largest economy could bolster the case for India's central bank to press ahead with further interest rate cuts, after implementing its first trim in nearly five years early last month. The move, which took the country's repo rate down by 25 basis points to 6.25% at the time, took place as India's GDP expanded by a weaker-than-expected 6.2% in the fourth quarter. More broadly, the Indian economy grew by just 6.5% in the financial year to March 2025 — a sharp slowdown from 9.2% the year before.

Yet the RBI Monetary