Retail Inflation In December Likely Fell To Within RBI Target: Poll


The RBI slashed interest rates by 115 basis points in March and May to stimulate growth

Retail inflation likely fell sharply in December, landing within the Reserve Bank of India’s target range, due to a significant drop in vegetable and food prices, a Reuters poll predicted.

The January 5-7 poll of around 45 economists suggested retail inflation fell to 5.28 per cent in December from 6.93 per cent in November.

“Food inflation – particularly vegetable prices – are beginning to correct since supply lines are being restored in food aided by good monsoons,” said Prithviraj Srinivas, chief economist at Axis Capital in Mumbai.

Inflation had been above the central bank’s target range of 2 per cent-6 per cent for the eight months since April, a streak not seen since August 2014.

If it matches the poll forecast, December would be the lowest inflation print since November 2019, giving some relief to the RBI, which has been caught between boosting economic growth and curbing high inflation.

The RBI slashed interest rates by 115 basis points in March and May to stimulate growth in an economy battered by the coronavirus pandemic, but it has held the key repo rate at 4 per cent since then, cautious of rising inflation.

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“The recent rally in commodities lends to a fresh cost-push impact. Room for outright rate cuts is, thereby, limited, but the central bank will settle into a long pause, with a bias to anchor rates through strong dovish guidance,” said Radhika Rao, economist at DBS Bank in Singapore.

Asia’s third-largest economy contracted 7.5 per cent in the quarter ending in September after declining 23.9 per cent in the April-June quarter. It was forecast to contract 7.7 per cent this fiscal year, the government said on Thursday.

Amid the global pandemic and an economic downturn, India has seen huge protests by farmers around the national capital region against new agricultural laws introduced by Prime Minister Narendra Modi’s government.

The poll also predicted industrial output contracted 0.4 per cent during November from a year earlier. In October, industrial production rose 3.6 per cent after expanding marginally in September for the first time since February 2020.

Infrastructure output, which accounts for about 40 per cent of total industrial production, contracted 2.6 per cent in November.

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