India’s retail price inflation accelerated to 7.35% in December from 5.54% a month ago, thus overshooting the central bank's medium term inflation target of 2-6%. The galloping inflation, led by rising vegetable prices, could constrain the Reserve Bank of India (RBI) from further monetary policy easing in February.
Data released by the statistics department showed food inflation accelerated to 14.12% in December from 10.01% a month ago as vegetable prices shot up by 60.5%.
"The upcoming budget in February would be closely watched out for fiscal stance and sector-specific actions. Even so, our estimates suggest inflation will likely remain above 6.5% in 4QFY20 and could constrain a rate cut in February," Edelweiss said in a statement.
The Reserve Bank of India (RBI) in a surprise move last month paused its rate cut cycle amid rising inflation risk. However, the Monetary Policy Committee said that it would maintain the “accommodative stance as long as it is necessary" but made it clear that there is a need to optimize the impact of rate reductions.
India's economic growth decelerated to a six-and-half year low at 4.5% in September quarter but statistics department has projected GDP to growth to pick up in the second half to touch 5% overall in 2019-20.