Indiastockguru Team
A 59-month low retail inflation was reported in July 2024. Retail inflation rate based on All India Consumer Price Index (CPI) number came in at 3.54% for the month of July, 2024. Corresponding retail inflation rate for rural and urban areas is 4.10% and 2.98%, respectively.
Reserve Bank of India maintained status quo on its policy rates, keeping repo rate unchanged at 6.5% on August 8th 2024. And the inflation has come quite below the 4% target in July 2024. So, will the Indian Central Bank start its rate cutting exercise like the UK, EU and other advanced economies. The RBI Governor, Shaktikanta Das has made amply clear that, reduction in policy rates will be as per domestic economic conditions and not according to the movements of US Federal Reserve interest rate cycle. But with 59-month low inflation, will the Indian Central Bank pull the trigger? Well, the probability is low and the reason again is the food inflation.
Its the base effect that has come into play in July 2024 with YoY food inflation rate of just 5.42% on a higher base of corresponding period previous year. Food inflation was as high as 11.51% in July 2023 with vegetable inflation rate of 37.34%. Thus, with the lowering of food inflation rate on a higher base of July 2023, retail inflation came in at a lower rate of 3.54% in July 2024. And vegetable inflation rate, a major culprit of higher food inflation plunged to 6.83% in July 2024.
RBI was expecting lower July inflation rate and had already forecasted 3.8% retail inflation in its June 2024 monetary policy committee meeting. On the whole retail inflation is expected to be around 4.5% in 2024-25. So, interest rate cut may be undertaken in Q4FY25, if the vegetable prices don’t soar and crude prices remain benign.
