India’s wholesale price-based inflation slid to a three year low of 7.18%, fuelling interest rate cut hopes, but retail prices grew by a worrisome 10.56% in December, driven by food prices.
All eyes are now on the Reserve Bank of India (RBI) on whether it slashes lending costs in the quarterly monetary policy review later this month. So far the central bank has withstood mounting pressure to reduce borrowing costs.
The RBI uses monetary tools to stymie demand and cool prices. The tug-of-war between sliding growth and rising inflation — which has forced the RBI keep interest rates high — appear to have hurt consumption demand.
Prime Minister’s Economic Advisory Council chairman C Ranagarajan feels the RBI may lower the policy rate later this month. “The numbers indicate a situation in which the RBI can stick to policy indications that it has given few weeks ago. Therefore, there is a possibility of making an adjustment in the policy rate downwards.”