23 December 2024

A worker loads consumer goods onto a supply cart at a wholesale market in Kolkata, India, on November 11, 2024.

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India's headline inflation rate eased from a 14-month high, reaching 5.48% in November.

The reading was down from 6.21% in October and below the 5.53% expected by economists polled by Reuters.

It also comes after the Reserve Bank of India kept interest rates at 6.5% during its latest monetary policy meeting last week, despite a sudden slowdown in economic growth. India's economy grew by only 5.4% in the second fiscal quarter ending in September, well below economists' estimates and close to a two-year low.

While the Reserve Bank of India does not release monthly inflation estimates, the Reserve Bank of India (RBI). Title print is expected to reach 5.7% During the country's third fiscal quarter ending in December. The central bank expects inflation to reach 4.8% during the entire fiscal year, which extends until March 2025.

Going forward, the Reserve Bank of India (RBI) said food price inflation is likely to ease in the fourth fiscal quarter, given seasonal easing in vegetable prices and arrival of kharif harvest. Good soil moisture conditions, coupled with comfortable reservoir levels, also bode well for winter crop production.

Agriculture is a major component of India's GDP, and food prices also play a major role in the country's inflation readings, which are measured by a separate measure known as the Consumer Food Price Index.

The Reserve Bank of India has previously warned that adverse weather events and rising international agricultural commodity prices pose upward risks to food inflation. “Companies expect pressures from input costs to remain high and growth in selling prices to accelerate from the fourth quarter,” the report noted on December 6.

A new stance for monetary policy?

The inflation reading comes days later India appointed a new central bank governorappointing Sanjay Malhotra to replace the bank's longtime head, Shaktikanta Das, in a move that some market watchers say reinforces expectations of an interest rate cut early next year.

Das was widely considered the most hawkish member of the Reserve Bank of India's monetary policy committee, and his departure could impact the board's overall stance, Shilan Shah, deputy chief emerging markets economist at Capital Economics, said in a note on Monday.

“Mr. Malhotra's appointment could set a new direction for the RBI,” Shah added.

If inflation declines sustainably, the Reserve Bank of India will have scope to cut interest rates in a bid to stimulate economic growth, after slowing for three consecutive quarters on an annual basis.

Economists at Capital Economics now expect a 25 basis point cut in India's repo rate during Malhotra's first MPC meeting in February, or at an unscheduled meeting before that. The group had previously expected a rate cut in April under Das's leadership.

Meanwhile, economists at Citibank stuck to their view on a February cut.

— CNBC's Dylan Potts contributed to this story.

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