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India’s retail inflation eased to a three-month low at 6.77 per cent in October as food inflation decelerated. However, the easing is unlikely to force a pause in the central bank’s rate hiking cycle.
Data released by the National Statistical Office on Monday showed food inflation eased to 7.01 per cent per cent from 8.6 per cent in September while fuel inflation remained elevated at 9.93 per cent.
RBI governor Shaktikanta Das on Saturday had hoped that retail inflation would come below 7 per cent in October.
Retail inflation has remained outside of the central bank’s Monetary Policy Committee’s tolerance band of 2-6 per cent for more than three successive quarters, marking the panel’s failure to achieve its legally-mandated inflation target. On November 3, the MPC held a special meeting to discuss and draft a report to be sent to the government regarding the failure on the inflation target.
Data separately released by the industry department showed wholesale price inflation eased to a 19 month low at 8.39 per cent in October on the back of a higher base and a broad based easing of pricing pressures. This is likely to slow the pass-through of input cost pressures by producers, supporting easing of retail inflation.
Morgan Stanley said on Monday it sees policy rates peaking at 6.5 per cent in the March quarter of 2023 with RBI expected to hike policy rates by another 60 bps. It hopes interest rates may start to soften again in the December quarter of 2023.
“We expect the RBI to take the terminal policy rate to 6.5 per cent in February 2023, before pausing to balance between macro stability and growth. As inflation dynamics improve, we expect a shallow rate cut cycle (of 50bp) building in rate cuts of 25bp in both 4Q 2023 and 1Q 2024,” the investment bank said in its latest Asia Economic Outlook.
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