Inflation eases to a 3-month low in January; industrial production picks up in December
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.
“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
