India’s retail inflation fell to a seven-month low of 3.61% in February from 4.26% in the previous month, according to data released by the Ministry of Statistics and Programme Implementation on Wednesday.

This was driven by a drop in food inflation from 5.97% in January to 3.75% in February. Food inflation in February was the lowest in 21 months, the previous low being 3.19% in May 2023.

The Centre attributed the decrease in headline and food inflation in February to lower inflation in vegetables, eggs, meat, fish, pulses and milk products.

“The problem areas appear to be fruits and vegetable oils,” Madan Sabnavis, chief economist at Bank of Baroda told MoneyControl. “The latter has also been affected by the volatile rupee which has pushed up imported costs.”

The Reserve Bank of India is tasked with keeping inflation at 4%, with a tolerance band between 2% and 6%.

On February 7 it had reduced the repo rate by 25 basis points to 6.25%. The current decline in inflation will likely help the central bank cut the policy rate further in April as this data is factored in while it makes its bi-monthly monetary policy.

Central banks typically increase key lending rates at times of high inflation in economies. Higher key lending rates translate into high interest on loans disbursed by commercial banks. This, in turn, keeps a check on discretionary spending by consumers.

Data released on Wednesday also showed that India’s factory output, as measured by the Index of Industrial Production, grew by 5% in January as compared to 3.5% in December. The growth was driven by manufacturing of basic metals, refined petroleum products, and electrical equipment.