Opinion
Mint Quick Edit: Lower inflation raises the likelihood of an RBI rate cut
Summary
- November’s 5.5% print has raised hopes of an easing monetary-policy cycle starting in February. It’s not a given, of course, but the latest data does shift the odds in favour of it.
As luck would have it, Sanjay Malhotra’s assuming charge of the Reserve Bank of India (RBI) has been accompanied by a notable drop in inflation.
Measured by the consumer price index, India’s inflation rate fell to 5.5% in November, compared with 6.2% in October, according to government data released on Thursday.
October’s reading was the highest in 14 months, but November’s retreat would suggest that the spike above RBI’s 6% upper tolerance limit was a blip.
Also read: RBI signals cautious optimism on growth-inflation balance
Readings for the following few months would give us a better picture of whether RBI’s goal of price stability is being achieved.
As food price pressures have eased, a further drop in the headline number is anticipated.
Given recent concerns over flagging economic growth, inflation even half a percentage point above RBI’s 4% central target may pave the way for a policy rate-cutting cycle starting February.
Also read: Is MPC doing enough on inflation? Consumers are divided
Industry lobby groups and the government would welcome that.
But a pivot early next year need not necessarily follow if prices don’t look adequately tethered.
Also, with a change in the White House, the potential impact of any US policy shift will have to be on RBI’s radar. Still, lower rates are now looking likelier.
Also read: Mint Primer | All about the inflation spike: how, why & when
