India Poised for Lower Inflation and Interest Rates, Say Economists

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India's economic landscape is showing signs of easing inflation and potential interest rate reductions, according to a recent Moneycontrol poll of economists. The survey indicates that consumer price inflation is expected to continue its downward trend, providing the Reserve Bank of India (RBI) with room to lower interest rates to support economic growth.




Reuters

In November, retail inflation eased to 5.48%, down from October's 6.21%, primarily due to a slowdown in food price increases, particularly vegetables. This moderation in inflation has bolstered expectations for a rate cut by the RBI in its upcoming policy meetings. Economists anticipate a 25 basis point reduction in the repo rate, which currently stands at 6.25% following a cut in February—the first in nearly five years.Reuters+1Moneycontrol+1Reuters+1Business Standard+1

RBI Governor Sanjay Malhotra emphasized that the recent rate cut was driven by inflation aligning with the central bank's target, and he highlighted the positive outlook for food inflation due to favorable agricultural conditions. The central bank projects consumer price index (CPI) inflation at 4.2% for the fourth quarter and for the financial year 2025-26.Reuters+3Business Standard+3The Financial Express+3

While the RBI has maintained a cautious approach, the combination of easing inflation and slowing economic growth—projected at 6.4% for the fiscal year—suggests that further rate cuts may be on the horizon. However, economists also point to potential risks, including global geopolitical uncertainties and volatile energy prices, which could impact the inflation trajectory and monetary policy decisions.Reuters+1Reuters+1

Overall, the consensus among economists is that India is entering a phase of lower inflation and interest rates, which could provide a conducive environment for economic expansion and investment.

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