Daily Voice: RBI May Lower Inflation Forecast in June Policy
The Indian economy stands at an interesting juncture. As speculation rises that the RBI may lower inflation forecast in June policy, several market watchers are turning their focus to whether India’s growth story in FY26 will truly outpace FY25. Among the most compelling voices in this narrative is P Krishnan, Managing Director & Chief Investment Officer – Equity Asset Management at Spark Asia Impact Managers. His deep dive into market behavior, bond yield trends, and policy expectations offers a cautionary yet insightful tone about where India—and the world—is heading.
RBI May Lower Inflation Forecast in June Policy: Why Now?
According to P Krishnan, one of the key developments to watch in June is whether the RBI may lower inflation forecast in June policy review. The rationale is simple: external price pressures are waning, commodity prices have cooled, and there’s optimism surrounding above-normal monsoon showers.
The Reserve Bank of India has already signaled a cautious approach in recent months. However, the combination of easing inflation and decelerating global demand may just be enough for the RBI to acknowledge that price stability is finally within reach.
Monsoon predictions have bolstered confidence in agricultural output, which traditionally plays a significant role in controlling food inflation—a major component of the Consumer Price Index. All signs point to the possibility that the RBI may lower inflation forecast in June policy, in line with its evolving data-driven approach.
Bond Yields: A Global Puzzle with Local Implications
Interestingly, bond yields are refusing to behave the way one might expect in a slowing global economy. Typically, softening growth should push bond yields down. Instead, they are holding firm, and this has significant implications.
“There is a rollover challenge for US debt,” Krishnan explains. “This is not just a temporary concern—it’s a structural drag. The bond market is facing a fundamental problem, not a cliff event.”
If bond yields remain elevated globally, India will not remain untouched. High US yields reduce the interest rate differential between India and the US, which could limit the RBI’s ability to cut rates even if the RBI may lower inflation forecast in June policy meeting.
Growth Outlook for FY26: A Reality Check
While some optimistic voices are touting stronger growth in FY26, Krishnan remains skeptical. He points out that the GDP growth for FY25 had to be revised down and that expecting a significant improvement in FY26 is unrealistic.
“Indian growth will remain steady. But setting unrealistic expectations is dangerous. The global drag from sluggish trade, weak IT performance, and tighter financial conditions will persist,” he says.
So, while the RBI may lower inflation forecast in June policy, that should not be misinterpreted as a green light for aggressive optimism about India’s growth outlook.
Market Valuations: A Cautionary Tale
Another concern Krishnan raises is the dangerously inflated valuations in certain segments of the equity market. Many portfolios are currently propped up by the narrative of relative valuations—a concept that begins to fall apart in a high-yield, high-volatility environment.
“Some parts of the market are in a slow-motion train wreck,” he notes. “They are buoyed by recent high returns and momentum chasing, but the fundamentals are not supportive.”
This should ring alarm bells for retail investors who have entered the market post-COVID with expectations of double-digit returns. If the RBI may lower inflation forecast in June policy, rate cuts may follow, but that does not mean equities will deliver similar outsized gains as seen in the past.
Tariff Troubles and the US Fed’s Dilemma
Another major overhang for global and Indian markets is the escalating trade tariffs. While initial shocks have subsided, average tariff levels are now expected to stay around 10–15%—a significant increase from just under 3% at the beginning of the year.
Tariff hikes are inherently inflationary, which complicates the US Federal Reserve’s decision-making. Krishnan believes the Fed will likely delay rate cuts until at least September, awaiting clarity on inflationary trends triggered by these tariffs.
This has direct implications for Indian monetary policy. If the RBI may lower inflation forecast in June policy, but the Fed holds off on easing, India’s bond yield differential could shrink further, putting pressure on foreign capital flows.
Is the Market Froth Clearing?
Krishnan is blunt in his assessment: “Unless valuations go down meaningfully, the froth will not clear.”
He believes that much of the recent rebound from April lows is unwarranted. The broader market remains accident-prone, with poor earnings support and inflated expectations.
Even if the RBI may lower inflation forecast in June policy, and introduces some rate cuts, it won’t be enough to support the current levels of optimism across all market segments. Investors need to brace for volatility and adopt a stock-specific approach.
Equity Returns in 2025: Consolidation Over Celebration?
So, where does the Indian equity market go from here?
Krishnan predicts a year of consolidation, not celebration. If the market does rise beyond nominal GDP levels, it will be due to speculative excesses—making the system more fragile.
This aligns with the broader narrative that while the RBI may lower inflation forecast in June policy, a long-term sustainable bull run needs more than just lower inflation—it needs credible earnings growth and reasonable valuations.
Power Sector: A Bright Spot?
Krishnan remains selectively optimistic about the power sector, particularly beyond just equipment manufacturers. India’s growing energy demand and clean energy transition are creating long-term opportunities in this space.
However, he cautions against narrow sectoral plays. Instead, investors should focus on broader themes where demand visibility and policy support align with long-term growth trends.
Themes to Watch in FY26
Krishnan advises caution when it comes to broad thematic investing. “This is not the time for overly optimistic theme-based plays,” he says.
Instead, focus areas should include:
- Domestic-centric consumption
- Financialization of savings
- Digital payment infrastructure
- Clean and renewable energy
These themes are still valid, but investors should not get swayed by overly dramatic storytelling. Even if the RBI may lower inflation forecast in June policy, smart investing will rely on data, not narratives.
Interest Rates: What’s Next?
If the RBI may lower inflation forecast in June policy, there could be modest room for rate cuts. However, given the complexities in the global bond market and the narrowing rate differential with the US, any such moves will be measured.
Expect the RBI to stay cautious, balancing inflation targets with financial stability. Any aggressive monetary easing is unlikely in the current context, no matter how optimistic the inflation outlook becomes.
Final Thoughts: Navigating the Second Half of 2025
As we look ahead, one thing is clear—the financial environment is laden with uncertainties. While it’s possible the RBI may lower inflation forecast in June policy, that development must be viewed in a broader context.
Markets need to be cautious about:
- Overstretched valuations
- Volatile global bond yields
- Unpredictable Fed policy moves
- Fragile earnings outlooks
Investors would do well to avoid chasing past returns and instead prepare for a market environment that rewards patience, discipline, and selective investing.
It is highly expected that the RBI may lower inflation forecast in June policy, based on improving supply-side data.
With agricultural output likely to rise, the RBI may lower inflation forecast in June policy to support monetary easing.
Analysts believe the RBI may lower inflation forecast in June policy, allowing rate adjustments later in the year.
If the RBI may lower inflation forecast in June policy, equity valuations could face new recalibrations.
Despite volatility, the fact that the RBI may lower inflation forecast in June policy offers optimism for investors.
There are market assumptions that the RBI may lower inflation forecast in June policy, particularly on the back of monsoon data.
Bond traders are pricing in a scenario where the RBI may lower inflation forecast in June policy.
Even if the RBI may lower inflation forecast in June policy, growth expectations should remain conservative.
The RBI may lower inflation forecast in June policy, but that doesn’t imply an aggressive rate cut cycle.
P Krishnan is among the analysts who think the RBI may lower inflation forecast in June policy.
As markets prepare for policy announcements, expectations are building that the RBI may lower inflation forecast in June policy.
- Given the global context, it’s reasonable to assume the RBI may lower inflation forecast in June policy to align with easing trends.
Disclaimer: This blog is based on insights from an interview with P Krishnan of Spark Asia Impact Managers and reflects current market opinions. Readers are advised to consult certified financial advisors before making any investment decisions.
