India’s inflation rate likely to decelerate in the forthcoming months

The Reserve Bank of India had cut its benchmark interest rate by 50 basis points to 6.75 percent last in September 2015, and is likely to be accommodative in the forthcoming months. Even after having a favourable inflation environment, the consumer prices came in at 5.6 percent y/y in December as a result of rising food prices. However, inflation is within the central bank's target of 4% ±2 percentage points.

The government is likely to put further pressure on the central bank to provide additional stimulus, so as to lower the policy rate to 6.50 percent in the first quarter of this year. Subsequently, the central bank is expected to keep monetary policy unchanged until the second half of next year.

"We estimate that inflation will decelerate slightly over the next few months before re-approaching the 6% y/y mark by the end of 2016." Says Scotiabank in a research note