As inflation reached 7.48% — the lowest level in 11 months — the government on Tuesday said prices would cool further pushing benchmark inflation to about 6% by March.
“I am hoping it to be around 6% by March,” finance minister Pranab Mukherjee told reporters on the sidelines of a seminar organised by the Comptroller and Auditor General (CAG).
Mukherjee’s comments came shortly after the latest price data showed the wholesale prices based inflation data fell to 7.48% in November from 8.58% in October.
With inflation showing signs of cooling, economists expects the Reserve Bank of India (RBI) to signal a pause in interest rates hikes in its mid-quarter policy review on Thursday to goad companies to go ahead with planned expansions.
“We expect it to keep policy rates unchanged but maintain a hawkish tone,” said Rajiv Malik, senior economist of broking and research firm CLSA, Singapore.
The RBI has raised key policy rates six times so far this year as prices raced into high-double digits pummelled by a supply crunch of staple items.
In November, RBI had increased the repo and reverse repo rates each by 0.25 percentage points to 6.25 % and 5.25%, respectively.
A higher repo, the rate at RBI lends to lenders, raises the banks’ borrowing costs prompting them to raise interest rates for final home, auto and corporate borrowers.
A higher reverse repo—the rate at which RBI absorbs excess cash — means it would suck cash from the system to stymie demand and cool prices.