India’s retail inflation eased to a three-month low of 9.87% in December, from 11.16% in the previous month as fresh seasonal arrivals pushed down vegetable prices, bringing some relief to a government caught in a pincer attack of rising prices, sliding economic growth and sagging political stock.
The more than one percentage point drop in retail inflation has also triggered hopes that the Reserve Bank of India (RBI) will not raise interest rates in its credit policy review on January 28.
So, your home loan EMIs, are unlikely to rise further in the immediate future.
Equity markets rallied on expectations that lower inflation numbers will prompt RBI not to raise interest rates.
The benchmark Sensex climbed over 375 points clocking its best gain in seven weeks to close at 21,134.21 points, up 1.81% percent from its previous day's close.
India’s business leaders have been clamouring for an interest rate cut arguing that costly borrowing and raw material costs have crimped expansion and hiring plans.
India’s factory output contracted 2.1% in November, from a growth of 1.6% in October, mirroring companies’ low investment activity.
“The moderation in headline consumer price inflation in light of the fall in industrial production in November has added to the case for a pause in the January policy,” said Aditi Nayar, Senior Economist at credit rating and research firm ICRA.
In an unexpected move, the RBI last month kept the repo rate---its key lending rate—unchanged at 7.75%, temporarily warding off fears of an immediate hike in consumer loans and home loan EMIs.
The central bank had placed its bets firmly in favour of plunging vegetable prices to cool inflation, which the latest price data appear to have corroborated.
India’s wholesale inflation rate during November stood at a 14-month high of 7.52%, but is expected to fall in December whose data will be released on Wednesday.
Vegetable prices rose at a slower 38.76% in December year-on-year compared to the jump of 61% in November.
This has helped slow down annual food inflation to 12.16% last month from 14.72 % in November.
Prices of cereal, milk and eggs, however, continue to rise at a fast clip implying that overall inflation rates may not come down in a hurry.