India’s retail inflation remained below the Reserve Bank of India’s (RBI) target for the second consecutive month, raising questions about the central bank’s stance on interest rate cuts, Bloomberg reports.
The consumer price index (CPI) rose by 3.65% in August compared to the previous year, according to data released by the Statistics Ministry on Thursday. This figure is slightly higher than the 3.44% forecast by economists but lower than the 3.54% recorded in July.
Despite the lower-than-expected inflation, the RBI expects a gradual increase in price gains starting from September. Economists surveyed by Bloomberg predict an average inflation rate of 4% in the July-September period, suggesting a potential jump to around 5% in September.
The RBI has maintained its benchmark interest rate unchanged for over 18 months, with Governor Shaktikanta Das expressing reluctance to loosen monetary policy until inflation stabilizes around the central bank’s 4% target. The next rate review is scheduled for October 9th.
The persistent low inflation comes at a time when India’s economy grew at its slowest pace in five quarters during the April-June period. Some economists have expressed concern that the RBI’s tight monetary policy may have negatively impacted economic growth.
The continued low inflation, coupled with the slow economic growth, puts the RBI in a challenging position. The central bank faces pressure to stimulate the economy, but it remains committed to maintaining price stability. The upcoming rate review will be closely watched by analysts and investors to understand the RBI’s strategy for navigating this complex economic environment.
