India’s retail inflation slowed to a four-month low of 5.2% in December as food prices eased, a data point the new Reserve Bank of India Governor Sanjay Malhotra would consider while deciding on the possibility of an interest-rate cut in the monetary policy next month.

The inflation based on consumer price index (CPI) was 5.5% in November and 5.7% in December 2023.

Aditi Nayar, chief economist at ICRA, however, believed that a repo rate cut would be unlikely in the February policy as inflation was stuck above 5%. 

“With the headline inflation stuck stubbornly above 5%, the probability of a rate cut in the February 2025 policy review has certainly receded. However, the considerable decline in vegetable prices that is underway could convince some MPC (monetary policy committee) members to consider an early cut in the upcoming meeting, with a view to supporting growth. It will be interesting to see the views of the MPC members on the timing of a rate cut amidst the recent depreciation of the Indian rupee versus the US dollar,” Nayar said.

According to CPI data released by the National Statistics Office (NSO), the inflation in the food basked reduced to 8.39% in December. It was 9.04% in November and 9.53% in December 2023.

Last month, the RBI raised the inflation projection for the current fiscal year to 4.8% from 4.5%. It also said the lingering food price pressures are likely to keep headline inflation elevated in the December quarter.

The CPI-based headline inflation increased from an average of 3.6% during July-August to 5.5% in September and further to 6.2% in October 2024, with food inflation reaching a 15-month high of 10.9% in that month.