The inflation rate in India decreases, increasing the possibility of an interest rate reduction with the new governor.

• Despite a surprise slowdown in economic growth, the RBI maintained interest rates at 6.5% during its latest monetary policy meeting last week.
• The Indian economy grew at a slower-than-expected rate of 5.4% in the second quarter ending September, which is close to a two-year low.

In November, India's headline inflation decreased from its 14-month peak, reaching 5.48%.

The print was below the 6.21% in October and was below the 5.53% expected by economists polled by Reuters.

Despite a surprise slowdown in economic growth, India's economy expanded by just 5.4% in its second fiscal quarter ending September, which is below estimates by economists and close to a two-year low.

The Reserve Bank of India does not release monthly inflation estimates, but the RBI anticipates the headline print will reach 5.7% during the third fiscal quarter ending in December. The central bank forecasts that inflation will reach 4.8% throughout the full fiscal year, which concludes in March 2025.

The RBI predicts that food inflation will decrease in the fiscal fourth quarter due to seasonal price drops in vegetables and the arrival of autumn harvest. Additionally, favorable soil moisture and reservoir levels will boost the production of winter crops.

The consumer food price index is used to measure inflation in India, which is influenced by agriculture, a crucial element of the country's GDP.

The RBI has previously warned that adverse weather events and rising international agricultural commodity prices pose upside risks to food inflation. Additionally, businesses anticipate continued pressure from input costs and an acceleration in selling prices from Q4.

A new monetary policy stance?

The appointment of Sanjay Malhotra as the new central bank governor of India, replacing Shaktikanta Das, is seen by some market watchers as enhancing the prospects of rate cuts early next year.

According to Shilan Shah, deputy chief emerging markets economist at Capital Economics, Das' departure from the RBI's Monetary Policy Committee could impact the board's overall stance.

"Mr Malhotra's appointment could set a new direction for the RBI," said Shah.

If inflation decreases steadily, the RBI will be able to reduce interest rates in an effort to stimulate economic growth, following three consecutive quarters of slowdown.

Capital Economics' economists now anticipate a 25-basis-point reduction in India's repo rate during either Malhotra's first MPC meeting in February or an unscheduled meeting prior to that, instead of the previously predicted April rate cut under Das.

Economists at Citi meanwhile held to their view for a February cut.

— CNBC's Dylan Butts contributed to this story.