India’s inflation below RBI’s target, boosts rate cut bets
[NEW DELHI] India’s inflation eased below the central bank’s target range for the second time this year, strengthening the case for an interest rate cut as economic growth faces pressure from high US tariffs on Indian goods.
The consumer price index rose 1.54 per cent from a year earlier last month, according to data released on Monday (Oct 13) by the statistics ministry, compared with a 1.5 per cent increase forecast by economists in a Bloomberg survey.
The index had climbed 2.1 per cent in August, marking the first acceleration in ten months.
September’s reading marked the slowest pace of price gains in eight years, and the second time since July that inflation has slipped below the Reserve Bank of India’s (RBI) 2-to-6 per cent target range. This is also the first inflation reading since Narendra Modi government’s consumption tax overhaul took effect on Sep 22, lowering the prices of everyday items.
Bonds kept gains after the data, with the 10-year yield down two basis points to 6.5 per cent.
Benign inflation bolsters the chances that the RBI will ease policy rates at its next meeting in December. The central bank kept its benchmark interest rate unchanged earlier this month, but signalled there may be room to cut in the coming months to support an economy under pressure from US tariffs.
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India’s economy expanded 7.8 per cent in the three months to June, the quickest pace in over a year, but analysts expect the 50 per cent US tariffs to weigh on annual growth.
“The continued downward move in inflation provides room for the RBI to cut the policy rate further if needed,” said Sakshi Gupta, economist with HDFC Bank. “If growth momentum disappoints, based on high frequency indicators during the festive season, the possibility of a 25 basis points cut in December remains high.”
In a statement, the statistics ministry said that the slowdown in last month’s headline and food inflation was “mainly attributed to favourable base effect and to decline” in prices of items such as vegetables, pulses and eggs.
Above-normal monsoon rains this year have boosted farm output and helped cool food costs, which account for about half of India’s consumer price basket.
Food prices fell 2.3 per cent in September – the sharpest drop since December 2018. Vegetable prices fell 21.4 per cent from the previous year, compared to a contraction of 15.9 per cent in August.
Core inflation, which strips volatile food and fuel prices from the headline, accelerated to 4.6 per cent in September from 4.2 per cent in August, according to calculations from Bloomberg Economics.
Abhishek Gupta, India economist of Bloomberg Economics, said: “Core inflation rose, led by higher gold prices and a jump in housing rents, even after lower sales taxes cooled inflation in most categories.” BLOOMBERG
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