Experts predict a decrease of inflation, but no rate drop anytime soon

 Experts predict a decrease of inflation, but no rate drop anytime soon

October had a five-month low for retail inflation, at 4.87 percent.

Headline inflation has remained over the medium-term objective of 4 percent for 49 consecutive months, although being within the RBI's tolerance range of 2–6% percent for the second consecutive month.

Although the market had mostly anticipated that India's headline retail inflation rate would fall to a five-month low in October, analysts said a repo rate decrease was still unlikely. They said that there is still uncertainty around food prices, particularly with regard to kharif crops.

According to Bank of Baroda chief economist Madan Sabnavis, "the fall in volatility was on expected lines and we are not anticipating the central bank looking at dropping rates soon as the inflation numbers continue within its tolerance range."

The Monetary Policy Committee of the Reserve Bank of India will continue to adopt a hawkish stance in December, according to Aditi Nayar, chief economist at ICRA.

"At its next policy meeting, we anticipate the MPC to keep a hawkish tone despite the status quo on rates and stance. The earliest rate reduction that seems likely to occur is in August 2024, when a cycle of shallow rate cuts of 50–75 basis points would start, according to Nayar.

The government said on November 13 that October's inflation, as gauged by the Consumer Price Index, decreased from 5.02 percent in September to 4.87 percent. The headline rate of inflation has remained over the medium-term objective of 4 percent for 49 consecutive months, although being within the RBI's tolerance range of 2–6% percent for just the second consecutive month.

Anand Rathi Shares and Stock Brokers head economist Sujan Hajra said that the central bank would not be changing the repo rate for the next year.

"The RBI will keep the standstill position in place for the foreseeable future due to decreasing inflation and continuous economic resilience. For the next 12 months, we predict that inflation will range between 4 and 5 percent. As a result, we believe there is minimal chance that rates will move during this period," Hajra said.

The combination of a favorable base effect and declining prices for certain goods was blamed for the slowdown in inflation, even as rising onion prices restrained the decline.

The price of vegetables increased by 3.4 percent on a monthly basis among food products, mostly as a result of a rise in onion prices of 15 percent in a row. The prices of potatoes and tomatoes were more conducive to disinflationary trends. October saw no change in potato prices from September, but a 19% month-over-month decline in tomato prices.

"There are a few concerns in food prices, especially on kharif crops," said Sabnavis.

The agricultural ministry's estimations from October indicate that the total amount of foodgrains produced in the kharif season of 2023 would be 148.56 million tonnes, which is less than the 155.7 million tonnes produced in the previous year.

The central bank, which has maintained the key policy rate at its current level for the last four sessions, anticipates that inflation would moderate from 6.7% in FY23 to 5.4 percent on average in FY24.

On October 6, the MPC kept interest rates constant for the fourth consecutive meeting after raising the policy repo rate by 250 basis points to 6.5 percent in FY23 in an effort to reduce inflation.

Early in October, RBI Governor Shaktikanta Das said that the bank is still very vigilant and ready to take action to bring inflation into line with the objective.