Here's Why RBI Is Unlikely To Cut Rates Soon Even As Inflation Eases To Three-Month Low

India's retail inflation rate touched a three-month low of 5.10 per cent in January on account of lower food prices, according to official data released on Monday (12 February).

However, the Central bank is likely to wait before cutting rates as inflation remains above its target rate.

Inflation based on the Consumer Price Index (CPI) was at 5.69 per cent in December 2023 and 6.52 per cent in January 2024.

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Earlier last week, the Reserve Bank of India (RBI) left interest rates unchanged, signalling that cuts may be some time away as it focuses on getting inflation to 4 per cent on a sustainable basis.

Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.30 per cent in January, compared with a 9.53 per cent rise in December.

Prices of cereals rose 7.83 per cent year-on-year in January compared to 9.93 per cent in the previous month, while vegetable prices rose 27.03 per cent compared to 27.64 per cent in December, the data showed.

The Reserve Bank of India has been tasked by the government to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

The central bank forecasts retail inflation at an average of 5.4 per cent in the current fiscal year ending in March, and at 4.5 per cent for the next fiscal year.

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