Inflation lower than expectations, RBI may opt for a prolonged pause, say experts

Among food items, vegetables led the charge as their index rose 5% MoM primarily due to a 48% sequential increase in onion prices and 41% rise in prices of tomato

The surge in India's headline retail inflation in November 2023 was lower than market expectations, according to experts.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said: "While softer than expected, the surge in November CPI inflation has solely been led by food inflation."

Experts also said that the central bank is expected to opt for a prolonged pause.

Sakshi Gupta, Principal Economist, HDFC Bank, said: "The inflation print justifies the continued tightness in monetary policy stance that the RBI adopted at its policy last week."

Bhardwaj said: "The continued moderation in core inflation should provide respite to RBI which should keep them on a prolonged pause mode."

Additionally, Achala Jethmalaani, Economist, RBL Bank, said that the MPC has largely factored in these headline numbers for Q3FY24 and hence it would not see any significant monetary policy action.

The consumer price index (CPI) rose to 5.55 percent in November 2023, according to data released by the Ministry of Statistics and Programme Implementation on December 12.

At 5.55 percent, the CPI inflation print for November 2023 is 68 basis points (bps) higher than October's 4.87 percent. One basis point is one-hundredth of a percentage point.

The central bank, which has kept the key policy rate unchanged over the past four meetings, expects inflation to average 7 percent in FY24, a jump from 6.7 percent in FY23.

After increasing the policy repo rate by 250 basis points to 6.5 percent in FY23 to curb inflation, the MPC left interest rates unchanged for the fifth time in a row on December 8. RBI governor Shaktikanta Das said that the central bank remains highly alert and prepared to take steps to align inflation to the target.