People buy vegetables at a vegetable market in Siliguri, India, on December 28, 2024.
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India's inflation fell for the second straight month year-on-year, coming in slightly below expectations at 5.22% in December, strengthening the case for possible interest rate cuts.
Analysts polled by Reuters had expected a reading of 5.30%. The December edition represents the slowest pace of price growth since August 2024.
In October in the country Inflation rate reaches its highest level in 14 months at 6.21%Exceeding the 6% tolerance limit set by the Reserve Bank of India.
Reserve Bank of India Governor Sanjay Malhotra On December 24th The inflation rate is expected at 4.8% for the fiscal year ending in March 2025.
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Food inflation pressures are likely to persist in the third fiscal quarter, and will only begin to ease from the fourth quarter, Malhotra wrote in the statement.
This is due to the seasonal correction in vegetable prices and the arrival of the monsoon harvest, as well as potentially good production of winter crops and sufficient grain stocks. Agriculture is a major component of India's GDP.
A weaker inflation reading provides more scope for the Reserve Bank of India to cut interest rates, Amid slow growth in the country. India's economy grew just 5.4% in the second fiscal quarter ended September, well below economists' estimates and near a two-year low.
but, Weak rupee This made it difficult to ease monetary policy. On Monday, the value of the currency fell to a record low of 86.58 against the dollar, which may force the Reserve Bank of India to keep interest rates high in its attempt to support the currency.
The Reserve Bank of India, under former Governor Shaktikanta Das, kept interest rates at 6.5% at its last monetary policy meeting in December in a split decision. Das, whose term ended on December 11. He was succeeded by Malhotra.
India's GDP is expected to recover in 2025, but “the strength and height of the recovery appear uncertain at present,” Bank of America analysts said in a note earlier this month.
The bank expects areas such as agricultural production, fuel consumption, primary sector recovery, and air traffic to remain strong, while credit growth, financial indicators, and consumption will remain weak.
In November, Bank of America cut India's GDP forecast for the fiscal year ending March 2025 to 6.5% from 6.8% – lower than the Reserve Bank of India's forecast of 6.6%.
