The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) could consider a rate cut in February if food inflation declines in January, according to a report by ICICI Bank.The report emphasized that a deceleration in food prices may strengthen the case for easing policy rates to support economic growth.

It said, “Expected deceleration of food prices in January could increase the odds of a rate cut in February”.The minutes of the latest MPC meeting revealed a dovish stance, with two members advocating for a rate cut. Their argument was based on the moderation in growth and the limited transmission of food inflation to core inflation at present.

However, other members who voted to maintain rates expressed that the timing for a rate cut was not appropriate. They indicated that lower food inflation in the coming months could provide a suitable opportunity for such a move.

As per the data by the official data, the retail inflation in November was at 5.48 per cent as compared to 6.21 per cent logged in October, falling in line with the Reserve Bank of India’s 2-6 per cent comfort band. The report noted that if the decline in inflation continues further then the chances of the rate cut in the upcoming MPC in February are high.

The report also mentioned that in parallel, the Indian rupee (INR) has been under depreciation pressure due to a stronger US dollar index (DXY) driven by the hawkish stance of the Federal Open Market Committee (FOMC). This depreciation pressure led to net foreign portfolio investment (FPI) outflows worth USD 0.2 billion. 

It noted that the worsening external economic outlook is likely to keep the Indian Rupee under depreciation pressure in the near term. 

However, a lighter economic calendar for the week ahead might provide some respite. It said, “Given the worsening external outlook, we expect the depreciation pressure on the INR to persist going forward”. The report highlights the interplay between domestic inflation trends and external factors, which will likely shape the RBI’s monetary policy decisions in the coming months.