Inflation in India slowed to a lower-than-expected 5.22% in December.

Inflation in India fell for the second month in a row compared to the same period last year, coming in at a slightly lower than expected 5.22% in December, supporting the prospect of lower interest rates.

Analysts polled by Reuters had forecast a 5.30% reading. The December print marked the slowest rate of price growth since August 2024.

In October, the country inflation rate reached a 14-month high of 6.21%breaching the Reserve Bank of India’s 6% tolerance limit.

Reserve Bank of India Governor Sanjay Malhotra December 24 inflation is forecast at 4.8% for the fiscal year ending March 2025.

In a statement, Malhotra wrote that food inflation is likely to persist in the third fiscal quarter and will start to decline only from the fourth quarter.

This will be due to seasonal adjustment in vegetable prices and arrival of the monsoon crop, as well as a likely good harvest of winter crops and adequate buffer stocks of cereals. Agriculture is one of the major components of India’s GDP.

Softer inflation gives the RBI more room to cut rates, against the background of slowing growth in the country. India’s economy expanded just 5.4% in the fiscal second quarter ended in September, well below economists’ estimates and close to a two-year low.

however, the weakening of the rupee tightened monetary policy easing. The currency depreciated to a record low of 86.58 against the dollar on Monday, which could prompt the RBI to keep rates higher in its bid to support the currency.

At its last monetary policy meeting in December, the RBI under previous governor Shaktikanta Das kept rates at 6.5% in a split decision. Das, whose term of office expired on December 11, he was succeeded by Malhotra.

Earlier this month, analysts at Bank of America said in a note that India’s GDP is expected to recover in 2025, but “the strength and rally of the recovery appear uncertain.”

The bank believes areas such as agricultural production, fuel consumption, core sector recovery and air traffic will remain strong, while credit growth, fiscal performance and consumption figures will remain weak.

in November, BofA cut India’s GDP forecast for the fiscal year ending March 2025 to 6.5% from 6.8% – lower than the RBI’s forecast of 6.6%.