India’s July inflation rises to 4.45%, RBI stance seen unchanged

India’s annual consumer price inflation accelerated to 4.45% in July from 3.54% in June, government data showed on Monday, exceeding the median forecast of 4.1% in a Reuters poll.

The increase was driven by higher food prices, particularly vegetables and pulses, which rose 11.5% year-on-year. Core inflation, excluding volatile food and energy items, edged up to 3.4% from 3.1% in June.

Despite the pickup, economists and traders said the Reserve Bank of India (RBI) is unlikely to alter its monetary policy stance at its next review on September 4. The central bank has prioritized growth amid concerns over uneven economic recovery and has maintained its benchmark repo rate at 6.5% since February 2023.

"The RBI’s focus remains on supporting growth while keeping inflation within the 4% target band," said a Mumbai-based economist. "A single-month uptick in inflation is unlikely to prompt a change in policy, especially with growth still fragile."

The RBI has projected headline inflation to average 4.5% in the current fiscal year, slightly above its 4% medium-term target. The central bank has emphasized that it will remain data-dependent but has signaled tolerance for inflation above target if growth remains subdued.

Markets had largely priced in the inflation print, with Indian government bond yields and the rupee showing little reaction. The 10-year bond yield was steady at 7.18%, while the rupee traded marginally weaker at 83.95 per dollar.

Analysts at State Bank of India (SBI) noted that while food inflation remains a concern, the RBI’s policy decisions would likely hinge on broader economic conditions rather than a single inflation print.

The central bank’s next policy meeting is scheduled for September 4-5, with no change in rates expected by a majority of economists surveyed by Reuters.