Mint Quick Edit: Lower inflation raises the likelihood of an RBI rate cut

As luck would have it, Sanjay Malhotra’s assuming charge of the Reserve Bank of India (RBI) has been accompanied by a notable drop in inflation.

Measured by the consumer price index, India’s inflation rate fell to 5.5% in November, compared with 6.2% in October, according to government data released on Thursday.

October’s reading was the highest in 14 months, but November’s retreat would suggest that the spike above RBI’s 6% upper tolerance limit was a blip.

Also read: RBI signals cautious optimism on growth-inflation balance

Readings for the following few months would give us a better picture of whether RBI’s goal of price stability is being achieved.

As food price pressures have eased, a further drop in the headline number is anticipated.

Given recent concerns over flagging economic growth, inflation even half a percentage point above RBI’s 4% central target may pave the way for a policy rate-cutting cycle starting February.

Also read: Is MPC doing enough on inflation? Consumers are divided

Industry lobby groups and the government would welcome that.

But a pivot early next year need not necessarily follow if prices don’t look adequately tethered.

Also, with a change in the White House, the potential impact of any US policy shift will have to be on RBI’s radar. Still, lower rates are now looking likelier.

Also read: Mint Primer | All about the inflation spike: how, why & when