MUMBAI: The Reserve Bank of India (RBI) may cut interest rates by 0.25 percentage point as inflation is firmly under the desirable limit, credit rating agency Care Ratings said here.

With inflation being firmly under the desirable limits, there is a strong case now for the RBI to lower rates on or before June 2. The RBI now targets CPI inflation and not WPI as per its stated stance, it said.

WPI inflation for the first month of the year came in at a new low of -2.65 per cent which was slightly lower than CARE's forecast of -2.5 per cent. This corroborates with the lower CPI number for April which was 4.9 per cent, it said.

"We expect a rate cut of 25 bps even though there are upside risks in the form of sub normal monsoon, possible increase in crude prices, higher U.S. interest rates and weaker rupee," Care Ratings said in its report here.

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