The finance ministry has said there is room for further interest rate cuts by the Reserve Bank of India (RBI), as inflation remains comfortably below the central bank’s medium-term target of 4%. In its monthly economic review released on Monday, the ministry noted that consumer inflation has stayed under the 4% mark since February and dropped to a six-year low of 2.82% in May.“Core inflation remains subdued, and overall inflation is comfortably below the RBI’s 4 per cent target, affording room for the easing cycle to be sustained,” the report stated, PTI quoted.Since February, the RBI has already reduced the repo rate — the benchmark short-term lending rate — by 100 basis points. The central bank’s Monetary Policy Committee (MPC) is scheduled to meet next from August 4–6, and the new data may shape deliberations.The RBI had earlier projected headline inflation at 3.4% for Q2 FY26. However, with Q1 inflation already below the target, the finance ministry believes the full-year figure may come in even lower. “It appears likely that the full fiscal year inflation rate would undershoot the central bank’s expectation of 3.7 per cent,” the report added.Global factors are also working in India’s favour. The report said crude oil prices are expected to remain subdued after the Organization of the Petroleum Exporting Countries (OPEC) and its allies unexpectedly hiked production by 5.48 lakh barrels per day for August — on top of earlier monthly increases.On the fiscal side, both the Centre and states have maintained momentum in capital expenditure while staying within fiscal consolidation targets. The report noted that government revenues remain robust despite recent tax cuts and continue to post double-digit growth.As per its mandate, the RBI is required to maintain consumer price inflation at 4%, with a tolerance band of 2% on either side. The upcoming MPC decision will now be closely watched for signs of further easing.