India’s inflation cools to lower-than-expected 4.31% in January

India’s headline inflation dipped year-on-year for a third straight month to 4.31% in January, providing more room for monetary easing after the country’s central bank cut rates for the first time in nearly five years last week.

The January reading was the lowest since August 2024, and came below expectations of 4.6% from economists polled by Reuters.

While price growth cooled across the board, food price inflation declined significantly from 7.69% in December to 5.68% in January. The annual price growth for vegetables saw the biggest decline from 26.56% in December to 11.35% in January.

A drop in inflation could clear the way for another rate cut by the Reserve Bank of India, which slashed the repo rate to 6.25% from 6.5% on Friday in its bid to boost a slowing economy.

The RBI is currently facing a dilemma as it seeks to prop up growth in Asia’s third-largest economy, but rate cuts aimed at stimulating growth could weaken the rupee, which hit a record low earlier this month and has been under pressure due to a stronger dollar.

The Indian currency, however, strengthened over that past two days, reportedly due to an intervention by the central bank.

RBI Governor Sanjay Malhotra said in his statement that the decision to cut rates was owed to a decline in inflation, which is expected to further moderate in 2025 and 2026 toward the bank’s target of 4%.

Full-year growth for the fiscal year ending March 2025 is expected to come in at 6.4%, according to government estimates, sharply lower than the 8.2% a year earlier. The RBI also cut its growth forecast for the current fiscal year to 6.4% — matching the government outlook. The bank had pegged growth at 6.6% in its previous estimate.

“These growth-inflation dynamics open up policy space for the MPC [monetary policy committee] to support growth, while remaining focused on aligning inflation with the target,” the central bank said Friday.