India’s inflation drops to three-month low

A tougher monetary policy pursued by the central bank appears to be working

India's consumer-price index for October rose 6.77% from the same month a year ago, compared with 7.4% in September, according to data released by the Ministry of Statistics & Programme Implementation on Monday.

The positive results aren’t enough to force the Reserve bank of India (RBI) to consider pausing interest-rate increases just yet, as the figure has still remained above the regulator’s tolerance band of 2-6% for the tenth month in row. 

Headline inflation grew by 0.80% from 0.57% in the previous month. Inflation in the food basket was recorded at 7.01%, versus 8.6% in the preceding month.

Non-food, non-oil core inflation, which act as a key factor for the country’s rate setters, came in at 6.23%. Prices for clothing and footwear increased by 10.16%, while prices for housing rose 4.58% during the month on a year-on-year basis.

“With inflation staying above 6%, RBI cannot stop raising rates right now,” Rahul Bajoria, India economist at Barclays Bank told Bloomberg. “But with several price indicators showing a moderation in momentum, the size of rate increases could be tempered.”

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The regulator has hiked the key interest rate by 190 basis points to 5.90% since May. Economists at Goldman Sachs Group project the benchmark policy rate to grow to 6.75% by February.

The RBI could opt for a 35 basis points rate hike in December, compared to the previous three hikes of 50 basis points each, according to Aditi Nayar, an economist at ICRA, as cited by the agency.

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