India’s inflation rate likely to stay within RBI’s target through 2018, says Scotiabank

India’s inflation environment is favorable by historical terms. The headline inflation rate decelerated in September to 4.3 percent year-on-year after averaging 5.5 percent in the initial eight months of 2016. In the near term, inflationary pressures in India are expected to be curbed, helped by normal southwest monsoon rainfall, which is expected to keep a lid on food price gains, said Scotiabank in a research note.

Price pressures in the medium term are expected to gradually strengthen consistent with global energy prices. But inflation is still expected to stay within the Reserve Bank of India’s 4 percent, plus or minus 2 percent year-on-year target through 2018, noted Scotiabank.

Meanwhile, the benchmark repo rate of the Reserve Bank of India was cut by 25 basis points to 6.25 percent this month after the governor Urjut Patel took over the office and the decision-making framework of the RBI was reformed. Currently, a six-member monetary policy committee makes the interest rate decisions instead of the governor alone.

The RBI is expected to lower the rate one more time in the first quarter of 2017. The new governor, Patel, is expected to stay committed to the inflation-targeting framework of the RBI as it enhances credibility of the policy, underpins investor sentiment and assists in anchoring inflation expectations, added Scotiabank.