India’s inflation rate fell year-on-year for the second consecutive month, slightly lower than expected at 5.22% in December, strengthening the case for expected interest rate cuts.

Analysts polled by Reuters had forecast 5.30%. December’s data marked the slowest pace of price growth since August 2024.

In October, nationwide Inflation rate hits 14-month high of 6.21%exceeding the 6% tolerance limit of the Reserve Bank of India.

Reserve Bank of India Governor Sanjay Malhotra December 24 Inflation is expected to be 4.8% in the fiscal year ending March 2025.

Malhotra wrote in a statement that food inflation pressures are likely to persist in the third fiscal quarter and begin to ease in the fourth quarter.

This will be due to seasonal adjustment in vegetable prices and the arrival of monsoon harvest, along with likely good yields from winter crops and adequate buffer stocks of cereals. Agriculture is an important component of India’s GDP.

Weak inflation data gives the Reserve Bank of India more room to cut interest rates, Amidst the slowdown in the country’s economic growth. India’s economy grew only 5.4% in the second fiscal quarter ended in September, well below economists’ expectations and close to its lowest point in two years.

However, Rupee depreciation This makes it more difficult to relax monetary policy. The currency fell to a record low of 86.58 against the US dollar on Monday, which may force the Reserve Bank of India to keep interest rates high to support the currency.

The Reserve Bank of India, under former governor Shaktikanta Das, took a split decision at its last monetary policy meeting in December to keep interest rates at 6.5%. Das’ term ends on December 11, Malhotra succeeded.

Bank of America analysts said in a report earlier this month that India’s GDP is expected to recover in 2025, but “the strength and rebound of the recovery currently appear uncertain.”

The bank believes areas such as agricultural production, fuel consumption, core sector recovery and air traffic will remain strong, while credit growth, fiscal and consumption indicators will remain weak.

In November, Bank of America lowered India’s GDP forecast for the fiscal year ending March 2025 to 6.5% from 6.8%, lower than the Reserve Bank of India’s 6.6% forecast.