India’s Inflation Eases While Rupee Slump Dims Rate Cut Hopes

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India’s Inflation Eases While Rupee Slump Dims Rate Cut Hopes

(Bloomberg) — India’s inflation eased last month, but a plunging currency may give the central bank reason to delay cutting interest rates just yet.

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The consumer price index rose 5.22% in December from a year earlier, data from the statistics ministry showed Monday, remaining well above the Reserve Bank of India’s 4% target. The median forecast in a Bloomberg survey of economists was for inflation to slow to 5.3% from 5.48% in November.

Moderating inflation has boosted expectations that newly-appointed Governor Sanjay Malhotra will cut interest rates in February to support a slowing economy. The RBI has kept interest rates unchanged for nearly two years now.

However, geopolitical factors, including a surge in oil prices and US dollar, make it difficult to predict the direction India’s monetary policy will take in the coming months. The rupee has plumbed record lows in recent weeks, and plunged past a key psychological level of 86 per dollar on Monday.

In addition to a weak currency, Asia’s third-largest economy is also staring at higher energy prices. Aggressive sanctions by the US on Russia’s oil industry could force India to source more expensive crude from the Middle East, West Africa or North America. India has steadily increased its intake of discounted Russian crude since the war on Ukraine, and relies on Moscow for about a third of its oil imports now.

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