Inflation in India fell to a lower-than-expected 5.22% in December

India’s year-on-year inflation fell for the second consecutive month, coming in at a below-expected 5.22% in December., pushing the case for future reductions in interest rates.

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

The annual growth of food prices – a key measure – fell to 8.39% in December, from 9.04% in November, and MoSPI highlighted that there has been a “significant decline” in inflation in vegetables, sugar, cereals and confectionery, among others. However, the prices of peas, potatoes and garlic had the three biggest year-on-year increases last month.

In October, from the country the inflation rate hit a 14-month high of 6.21%Breaking the Reserve Bank of India’s 6% tolerance limit.

Reserve Bank of India Governor Sanjay Malhotra on December 24 An inflation rate of 4.8% is predicted for the financial year ending in March 2025.

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

In the statement, Malhotra wrote that food inflation pressures are likely to persist in the third fiscal quarter and not start until the fourth quarter.

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

A softer inflation reading gives the RBI more room to cut rates, amid slowing growth in the country. India’s economy grew just 5.4 percent in the fiscal second quarter that ended in September, well below economists’ estimates and near a two-year low.

However, the weakening rupee it has made it more difficult to loosen monetary policy. On Monday, the currency hit a 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, his term ended on December 11, He was replaced 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 is currently uncertain.”

The bank sees areas such as agricultural production, fuel consumption, core sector recovery and air traffic remaining strong, while credit growth, tax and consumption indicators will remain soft.

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

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