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People buy vegetables at a vegetable market in Siliguri, India, on December 28, 2024.
Nurfoto | Nurfoto | fake images
India’s inflation declined for the second consecutive month year-on-year, falling just short of expectations at 5.22% in December, strengthening the case for potential interest rate cuts.
Analysts polled by Reuters had forecast a reading of 5.30%. The December figure marked the slowest pace of price growth since August 2024.
In October, the country The inflation rate had 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 forecast an inflation rate of 4.8% for the fiscal year ending in March 2025.
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In the statement, Malhotra wrote that food inflationary pressures would likely persist in the fiscal third quarter and would only begin to ease from the fourth quarter.
This will be due to a seasonal correction in vegetable prices and the arrival of monsoon crops, as well as likely good production of winter crops and adequate cereal buffer stocks. Agriculture is a major component of India’s GDP.
The softer inflation reading offers more scope to the RBI to cut rates. amid a slowdown in growth in the country. India’s economy expanded just 5.4% in its fiscal second quarter that ended in September, well below economists’ estimates and near a two-year low.
However, a weakening rupee has made it more difficult to make monetary policy more flexible. On Monday, the currency depreciated to a record low of 86.58 against the dollar, which could force the RBI to keep rates elevated as it seeks to support the currency.
The RBI, under previous governor Shaktikanta Das, kept rates at 6.5% in its last monetary policy meeting in December in a split decision. Das, whose term ended on December 11, He was succeeded by Malhotra.
Bank of America analysts said in a note earlier this month that India’s GDP was expected to recover in 2025, but “the strength and rebound of the recovery appears uncertain for now.”
The bank forecasts that areas such as agricultural production, fuel consumption, core sector recovery and air traffic will remain strong, while credit growth and fiscal and consumption indicators will remain weak.
In November, BofA had lowered 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%.
