Rapidly cooling inflation is building the case for the Reserve Bank of India (RBI) to cut interest rates as soon as its next monetary policy meeting on December 2, say economists.
Consumer prices rose a slower-than-expected 5.5 percent on year in October, following a 6.5 percent increase in the previous month, led by a fall in local food prices. This was the slowest pace since the index was launched in January 2012.
Inflation is now well below the central bank’s target of 8 percent for January 2015 and even dropped below the 6 percent target for January 2016.
The data indicates “interest rate cuts are likely to come onto the agenda sooner than most currently seem to expect, perhaps even as early as the RBI’s next meeting in December,” Shilan Shah, India economist at research firm Capital Economics wrote in a note.
Consensus expectations are for the first rate cut to come in the second quarter of next year, according to Capital Economics.
India’s benchmark repo rate has been unchanged since January, when the central bank increased it by a quarter percent point to 8 percent.