Inflation in India is likely to be less than what RBI had feared

The RBI targets inflation at 4 percent, with a tolerance level stretching up to two percentage points on either side.

The global brokerage also noted that the RBI will be on an extended pause and will slash the interest rates in October this year. The central bank has paused its rate-hike cycle by retaining the key lending rate at 6.5 percent, after six consecutive hikes by a cumulative 250 bps. The RBI remained focused on withdrawal of accommodation.

"Cost conditions have somewhat eased, inflation expectations of households have also eased. On the upside, adverse climatic conditions are a risk to future inflation trajectory," RBI Governor and MPC Chair Shaktikanta Das had said earlier while announcing the policy decisions. "The rising uncertainty in international financial markets and imported inflation pressures need to be monitored. Milk prices are also likely to remain firm going into the summer season due to tight demand-supply balance and fodder cost pressures."

The finance ministry on Monday said that India's economy could see risks to growth and inflation due to challenges in the country's external sector and weather-related uncertainties, but domestic demand remains strong.

"Going forward, several factors, such as weaker-than-expected oil supply, higher-than-anticipated demand from China, intensification of geo-political tension and unfavourable weather conditions," may pose an upside risk to India's inflation forecasts, the ministry said in its monthly economic review.

The report also said that softening of international prices have resulted in easing domestic inflationary pressures. "Sticky" core inflation has moderated "significantly" to an almost three-year low in April, signalling a pass-through of lower input costs by producers, the report stated.

The report, however, said outcomes in April are too early to predict the forecast for the entire year.

In April, India’s retail inflation eased to an 18-month low of 4.70 percent, according to data released by the National Statistical Office (NSO). At 4.70, the CPI in April remained below the upper threshold of the central bank's medium-term 4+/- 2 percent target.

The country’s headline inflation remained within the tolerance range of the RBI for the second consecutive month. In March, India’s headline inflation stood at 5.66 per cent.

The CFPI or the consumer food price index eased to 3.84 percent in April, as compared to 4.79 percent in March.

Meanwhile, the rural inflation in April stood at 4.68 percent, and the urban inflation came at 4.85 percent.

India’s industrial output in March surged 1.1 percent, the NSO stated in separately released data. Factory output measured in terms of the Index of Industrial Production (IIP) rose 2.2 percent in March 2022.