India December inflation seen easing on lower food prices

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RBI's Raghuram Rajan, left the lending rate unchanged but talked tough on inflation saying it was ready to act. Express RBI's Raghuram Rajan, left the lending rate unchanged but talked tough on inflation saying it was ready to act. Express
SummaryRaghuram Rajan left lending rate unchanged but talked tough on inflation saying it was ready to act.

India's inflation rate will probably ease in December from stubbornly high levels helped by waning food prices, a Reuters poll showed, providing some respite to the Reserve Bank of India struggling with cost pressures and slow growth.

The poll of 22 economists showed wholesale prices eased in December to 7.00 percent from the 14-month high of 7.52 percent in November.

Consumer prices likely eased to 9.92 percent in December, from 11.24 in the previous month.

Cooling food costs helped both measures ease off their highs in recent months and should come as a relief to the RBI which has raised interest rates twice since September in a bid to contain price pressures despite a slowdown in economic activity.

"The much awaited correction in vegetable prices seems to have finally arrived with news reports suggesting that prices of many vegetables fell 10 to 40 percent in December." said Devika Mehndiratta, a senior economist at ANZ in Singapore.

Rigid food prices and supply side concerns prompted the RBI to raise the repo rate twice since September last year to 7.75 percent.

Central bank chief, Raghuram Rajan, left the lending rate unchanged last month but talked tough on inflation saying it was ready to act.

Analysts also expect any down trend in inflation to end the RBI's tightening cycle.

"They (RBI) will try and make sure that inflation is coming down for good before they take action," said Madan Sabnavis, chief economist at Care Ratings. "In the month of March we could expect a decrease in the repo rate."

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