Mint Quick Edit | An inflation dip enlarges RBI’s policy space
Summary
April’s mild rise of 3.16% in India’s retail price level is part of a moderation trend that’s likely to continue. We can expect even cheaper credit in support of economic growth.
India on Tuesday reported a further dip in retail inflation to 3.16% in April, with the price level a year earlier as the base for this measure, compared with 3.34% in March. Last month’s reading is the lowest since July 2019 and the third consecutive month that it has stayed below the Reserve Bank of India’s (RBI) 4% target.
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A broader cool-off in food prices was to thank, with food inflation slumping to 1.78% last month. This brightens the prospect of inflation undershooting RBI’s 3.6% forecast for the first quarter of 2025-26. With monsoon rainfall expected to be higher than average, the odds favour food prices staying low, so long as supplies are managed well. In addition, global crude oil prices are well within a comfort zone, which should also help keep the cost-of-living incline under check.
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Meanwhile, the growth outlook isn’t as sunny. Fears of world trade patterns being upended may have receded, but high uncertainty prevails and India’s economic engines face risks.
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RBI has cut its policy rate of interest twice in its current easing cycle. The rest of the year could see more action. While price stability is a must, GDP growth may need the support of cheaper credit.
