The spike in September retail inflation — a nine-month high of 5.5 per cent — has led many analysts to push back the possibility of a rate cut by the Reserve Bank of India (RBI) to February 2025.

Last week, the monetary policy committee (MPC) had changed its stance to neutral from withdrawal of accommodation. Analysts had considered this a precursor to a rate cut in December 2024.

The analysts said the RBI’s action will now be data dependent, and an interest rate reduction will happen only if India’s growth hits a roadblock.

Aditi Nayar, chief economist at Icra, said for a rate cut to happen in the December, either retail inflation should flatten considerably below 5 per cent in the next print or the GDP growth for the second quarter will need to significantly undershoot the RBI’s expectations.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said the higher than expected inflation means the RBI will remain cautious. The next reading could also be above 5 per cent.

However, winter crop arrivals could lead to some easing in price pressures. Bhardwaj expects a downward revision to interest rates only in 2025.

Madhavi Arora, lead economist at Emkay Global Financial Services, said the upside risks to inflation could pressure the RBI to hold on to rates. She forecast October inflation at 5.25 per cent.

`Weaker activity data and existing slack will continue exerting disinflationary pressure on core prices (ex-gold), even as food inflation stays somewhat untamed. The event risk of US elections could materially disturb Asian forex dynamics, amid ratcheting up of the US-China trade war," she said.

The aim of financial stability may precede inflation management, Arora said.

Some economists continue to be dovish. Radhika Rao, executive director and senior economist, DBS Bank said that only a "narrow segment" of food articles continues to complicate India’s disinflation path, while non-food segments remain largely steady or lower.

"We expect the strong finish of the monsoon to bode well for the harvest and moderate food prices toward the end of 2024, supporting the central bank’s shift toward easing."

RBI upbeat

The retail inflation is projected to average 4.5 per cent in 2024-25 and align with the target on a durable basis by 2025-26, RBI deputy-governor Michael Debabrata Patra has said at a conference here.

Speaking at an Reserve Bank of India meet in New Delhi, Patra said the Indian experience is unique in view of the incidence of repetitive shocks to food and fuel prices, which challenged the conduct of monetary policy.