Depreciating rupee may impact inflation control

New Delhi

A weakening rupee could increase the cost of imports, posing a risk to India's inflation control despite easing food prices, according to a new report. The rupee is hovering near its all-time low, making imported goods more expensive.

However, steady Rabi crop sowing and declining food prices are expected to keep retail inflation in check during the fourth quarter of 2024-25. January’s retail inflation dropped to 4.3%, a five-month low, remaining within the Reserve Bank of India’s (RBI) 2-6% target range.

Food inflation, which had surged in recent months due to rising vegetable, fruit, and edible oil prices, has now moderated. The report suggests that continued fresh produce supply will further ease inflationary pressures.

“With the inflationary concerns receding, the RBI has greater room to focus on economic growth,” Centrum Broking stated. The central bank recently reduced the repo rate by 25 basis points to stimulate economic activity after maintaining it at 6.5% for nearly five years.

The report predicts inflation to average 4.8% in 2024-25, allowing the RBI space for another 25-basis-point rate cut. However, it warns that a falling rupee could offset these gains by raising import costs, potentially affecting domestic prices.

Experts recommend closely monitoring currency fluctuations to ensure inflation remains controlled while supporting economic growth.