Retail inflation eased to a three-month low of 5.1% in January compared with 5.7% in December, reversing course from the previous two months, according to data released Monday.
Another data release showed that industrial output rose back again in December to 3.8% compared with 2.4%, indicating improving prospects.
Experts point out that moderating inflation coupled with strong growth provides further policy space for RBI to cut rates in the latter half of the year.
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“The key risk to the inflation outlook remains from food, which has been volatile due to successive supply-side shocks. At the same time, growth recovery has held up, providing policy space to remain focused on inflation,” said Gaura Sengupta, economist, IDFC First Bank, predicting a rate cut in the June or August meeting.
The Reserve Bank of India held the policy rate at 6.5% for the sixth consecutive time at its meeting in February. The RBI projects inflation to ease to 5% in the fourth quarter, ending the year at 5.4%. Inflation is expected to decline further to 4.5% in FY25 in the case of a normal monsoon.
“We foresee cumulative rate cuts of 50-75 bps, commencing in the August 2024 meeting, and a stance change in the preceding review after there is some visibility on the monsoon turnout,” said Aditi Nayar, chief economist Icra.
RBI Governor Shaktikanta Das stated in his post-policy statement last week had noted that the economy had performed well with growth accelerating and inflation on a downward trajectory, raising concerns around food