India’s central bank held its key interest rate for a seventh straight policy meeting on Friday as growth in the economy is expected to remain robust while inflation stays above the 4% target.
Bloomberg | Bloomberg | Getty Images
India’s headline inflation dipped year-on-year for a third straight month to 4.31% in January, providing more room for monetary easing after the country’s central bank cut rates for the first time in nearly five years last week.
The January reading was the lowest since August 2024, and came below expectations of 4.6% from economists polled by Reuters.
While price growth cooled across the board, food price inflation declined significantly from 7.69% in December to 5.68% in January. The annual price growth for vegetables saw the biggest decline from 26.56% in December to 11.35% in January.
“Looking ahead, good soil conditions, healthy reservoir levels and a high base means that we expect food inflation to continue slowing over the coming months,” said Harry Chambers, an economist at the consultancy Capital Economics. “And with the economy in a softer patch, underlying price pressures should remain in check.”
A drop in inflation could clear the way for another rate cut by the Reserve Bank of India, which slashed the repo rate to 6.25% from 6.5% on Friday in its bid to boost a slowing economy.
Subscribe now
The RBI is currently facing a dilemma as it seeks to prop up growth in Asia’s third-largest economy, but rate cuts aimed at stimulating growth could weaken the rupee, which hit a record low earlier this month and has been under pressure due to a stronger dollar.
The Indian currency, however, strengthened over that past two days, reportedly due to an intervention by the central bank.
RBI Governor Sanjay Malhotra said in his statement that the decision to cut rates was owed to a decline in inflation, which is expected to further moderate in 2025 and 2026 toward the bank’s target of 4%.
Full-year growth for the fiscal year ending March 2025 is expected to come in at 6.4%, according to government estimates, sharply lower than the 8.2% a year earlier. The RBI also cut its growth forecast for the current fiscal year to 6.4% — matching the government outlook. The bank had pegged growth at 6.6% in its previous estimate.
“These growth-inflation dynamics open up policy space for the MPC [monetary policy committee] to support growth, while remaining focused on aligning inflation with the target,” the central bank said Friday.
Credit: Source link
