India’s inflation slowed to a lower-than-expected 5.22% in December

India’s inflation declined for a second consecutive month year-on-year, coming in just below expectations at 5.22% in December., strengthen the case for future interest rate cuts.

Analysts polled by Reuters had expected a reading of 5.30%. The December press release from the Ministry of Statistics and Program Implementation marked the slowest rate of price growth since August 2024.

The annual growth of food prices – a key metric – decreased to 8.39% in December from 9.04% in November, with the MoSPI noting a “significant decline” in inflation in vegetables, sugar, cereals and confectionery, among others. Despite this, prices for peas, potatoes and garlic were observed the three highest year to year last month.

In October, the country the inflation rate reached a 14-month high of 6.21%breaching the 6% tolerance limit of the Reserve Bank of India.

Reserve Bank of India Governor Sanjay Malhotra on the 24th of December Forecast inflation rate of 4.8% for the fiscal year ending in March 2025.

“In terms of policy implications, today’s data – combined with a slowing economy and the shift in leadership at the RBI to an apparently less hawkish direction – suggest that the central bank will launch the easing cycle at the next meeting MPC in February. We expect a 25bp cut to the repo rate, to 6.25%,” Harry Chambers, assistant economist at Capital Economics, said in a Monday note. data release.

In the statement, Malhotra wrote that food inflation pressures were likely to persist in the third fiscal quarter, and only begin to ease from the fourth quarter.

This will be due to a seasonal correction in vegetable prices and the arrivals of the monsoon harvest, as well as a likely good production for winter crops and adequate cereal buffers. Agriculture is a major component of India’s GDP.

The softer inflation reading offers more room for the RBI to cut rates, amid slowing growth in the country. India’s economy grew by just 5.4% in its second fiscal quarter ended in September, well below economists’ estimates and close to a two-year low.

However, a weakened rupee made it harder to loosen 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 its bid to support the currency.

The RBI, under previous governor Shaktikanta Das, kept rates at 6.5% at 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 extent of the recovery appears uncertain for now.”

The bank sees areas such as agricultural production, fuel consumption, recovery of the core sector and air traffic to remain strong, while credit growth, fiscal and consumption indicators to remain steady.

in November, BofA had cut India’s GDP forecast for the fiscal year ending March 2025 to 6.5% from 6.8% – lower than RBI’s forecast of 6.6%.

— CNBC’s Ruxandra Iordache and April Roach contributed to this article.