India inflation slowed to 6.73pc in October, still above RBI’s tolerance zone of 6pc

• Inflation in India slowed to 6.73 percent in October but remained stubbornly above 6%.
• The Reserve Bank of India’s tolerance zone for inflation is between 2% and 6%.
• This keeps the possibility of the RBI increasing interest rates open.

India consumer price inflation slowed to 6.73 percent in October due to weaker food price increases and a high base from the previous year but remained stubbornly above the top limit of the Reserve Bank of India’s tolerance zone of 6%.

This inflation rate, as measured by the annual rise in the consumer price index (CPI), is expected to fall considerably from September’s level of 7.41%, according to the median projection of 47 economists surveyed from November 2-9.

Forecasts varied from 6.40% to 7.35%, with three-quarters of respondents anticipating a result of less than 7.00%, significantly below April’s peak of 7.79%. The RBI’s tolerability range is 2% to 6%.

However, economists cautioned that this was not a sign of a sudden recovery in what has been a gradual decline in pricing pressures. This keeps the possibility of the RBI increasing interest rates open.

Definitely, the inflation rate in India has peaked, but the easing process would be pretty slow…I do not see any easing of real price pressure,” said Kunal Kundu, an economist at Societe Generale. “Nobody is expecting us to reach 4% anytime soon. Not over the next 2-3 years.”

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A recent poll of analysts predicted that inflation would not reach the midpoint of the RBI’s target range until at least 2025, which was consistent with this general projection.

Since May, the central bank has increased its key repo rate by a total of 190 basis points, bringing it to 5.90%. According to the most recent survey, the RBI is expected to provide another 50 basis points by the end of March, bringing the rate to 6.40%.

“It will raise rates till it is convinced that inflation will not be rising again,” wrote Madan Sabnavis, chief economist at Bank of Baroda. “I do not think that rate hikes have brought down inflation – it is more due to better supplies for some goods and a statistical base.”

The RBI will protect the rupee by selling dollars from its reserves as a result of the rupee’s depreciation of around 9 percent during the course of the year.

Rahul Bajoria, the chief India economist at Barclays, wrote in a note, “Continued depreciation of the INR raising imported inflation and demand-driven pressures remain key factors that could keep core inflation elevated over the medium term.”

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