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

Inflation in India fell for the second straight month of the year, falling slightly below expectations to 5.22% in December., strengthening the case for prospective interest rate cuts.

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

of the country in October Inflation reached the highest level in the last 14 months – 6.21%Breaching Reserve Bank of India’s 6% tolerance limit. Reserve Bank of India Governor Sanjay Malhotra on December 24 It forecasts inflation for the fiscal year ending March 2025 at 4.8%.

Annual growth in food prices – the key indicator – fell from 9.04% in November to 8.39% in December, with MoSPI noting that inflation “declined significantly” in vegetables, sugar, cereals and confectionery. Headline inflation for vegetables fell to 26.56% in December, a step down from November’s 29.33%, but down from October at 42.18%. Despite this, the prices of peas, potatoes and garlic saw their highest growth in three years last month.

Agriculture is a major component of India’s GDP, and Malhotra had previously written that pressures on the food sector would continue into the third fiscal quarter before beginning to ease in the fourth quarter. This will be due to seasonal correction in vegetable prices and arrival of monsoon crop, as well as good harvest for winter crops and adequate grain stocks.

Softer inflation reading for December offers more room for RBI to cut rates, amid slowing growth in the country. India’s economy expanded just 5.4% in the fiscal second quarter ended in September, well below economists’ estimates and near the lowest level in two years.

“In terms of policy implications, today’s data – combined with a slowing economy and a less hawkish leadership shift at the RBI – suggests the central bank will begin a period of easing at the next MPC meeting in February. We expect a 25 basis point cut in the repo rate and a 6.25%- we forecast will decline by as much as,” Harry Chambers, assistant economist at Capital Economics, said in a note Monday after the data was released.

However, a weakening rupee tightened monetary policy easing. The currency fell to a record low of 86.58 against the dollar on Monday, which could force the RBI to hike rates in a bid to support the currency.

Under previous Governor Shaktikanta Das, the RBI kept rates at 6.5% at its last monetary policy meeting in December in a split decision. Das, whose term of office expired on December 11 He replaced Malhotra.

Analysts at Bank of America noted earlier this month that India’s GDP is expected to recover in 2025, but noted that “the strength and rally of the recovery appears uncertain for now.”

The bank expects areas such as agricultural production, fuel consumption, core sector recovery and air traffic to remain strong, while credit growth, fiscal and consumer indicators will remain soft.

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

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