People buy vegetables at a vegetable market in Siliguri, India, on December 28, 2024.
Nurphoto | Nurphoto | Getty Images
Inflation in India fell for the second month in a row on an annual basis, coming in at a slightly below-expected 5.22% in December, which strengthened the case for possible interest rate cuts.
Analysts polled by Reuters had expected a reading of 5.30 percent. The December printout records the slowest pace of price growth since August 2024.
In October is the country the inflation rate reached a 14-month high of 6.21%breaching the Reserve Bank of India’s 6% tolerance limit.
Reserve Bank of India Governor Sanjay Malhotra December 24 forecasts an inflation rate of 4.8% for the fiscal year ending March 2025.
In a statement, Malhotra wrote that food inflationary pressures are likely to persist in the third fiscal quarter and begin easing only from the fourth quarter.
This will be due to the seasonal correction of vegetable prices and the arrival of the monsoon harvest, as well as the likely good production of winter crops and adequate intermediate grain stocks. Agriculture is a major component of India’s GDP.
Softer inflation gives RBI more room to cut rates, amid slowing growth in the country. India’s economy grew just 5.4% in its fiscal second quarter ended in September, well below economists’ estimates and near a two-year low.
However, weakening of the rupee it made it difficult to loosen the monetary policy. On Monday, the currency depreciated to a record low of 86.58 against the dollar, which could force the RBI to keep rates high in an effort to support the currency.
The RBI, under the previous governor, Shaktikanta Das, kept rates at 6.5% at its last monetary policy meeting in December by a split decision. Das, whose term ended on December 11 succeeded Malhotra.
Bank of America analysts said in a note earlier this month that India’s GDP is expected to recover in 2025, but “the strength and growth of the recovery appear uncertain for now.”
The bank believes that areas such as agricultural production, fuel consumption, core sector recovery and air traffic will remain strong, while credit growth, fiscal indicators and consumption indicators will remain weak.
in November, BofA cut India’s GDP forecast for the fiscal year ending March 2025 to 6.5% from 6.8% — lower than the RBI’s forecast of 6.6%.
