India’s inflation was broadly steady in July, holding within the Reserve Bank’s 2%-6% target range and cementing expectations policymakers will keep interest rates unchanged for some time.
The consumer price index rose 4.45% in July from a year earlier, matching expectations. In June, the figure breached the RBI’s 4% target for the first time in 17 months.
The data reinforce the RBI’s decision to hold rates at 5.25% for a fourth straight meeting, with attention now turning to whether price pressures remain contained. Policymakers have stressed the need for greater clarity on the path and composition of inflation before acting. Price growth remained within the central bank’s tolerance band for a seventh month.
The yield on India’s benchmark 10-year government bond slipped one basis point to 6.77% following the release.
Food inflation, which accounts for about 37% of India’s consumer price basket, accelerated to 5.52% in July from a year earlier, compared with 5.32% in June.
Last week, Governor Sanjay Malhotra warned inflation will likely rise in the near term and peak in the December quarter on higher food and fuel costs. The RBI expects inflation to reach 5% in the year through March. Still, Malhotra said Tuesday that price pressures remain “more or less under check.”
Inflation hovered near the RBI’s 2% lower bound for much of 2025, supporting rate cuts. The central bank is now confronting a pickup in price pressures, though economists see little urgency to act.
Australia & New Zealand Banking Group’s economist Dhiraj Nim said the inflation print shouldn’t “bother policymakers” as it was largely in line with expectations. While pressures are building beyond food and fuel, they’re doing so “not in a reckless manner,” he said.
Others see favorable food-supply conditions helping keep those pressures contained. A pickup in the monsoon, largely stable sowing and ample buffer stocks could give the RBI comfort to remain on a “prolonged pause,” said Teresa John, an economist with Nirmal Bang Equities Pvt Ltd.
So far though, the RBI has stood apart from many regional central banks by leaving policy unchanged this year, even as counterparts from Japan to Australia and Indonesia tightened monetary settings.
Indian officials view the ongoing war in the Middle East as a temporary supply shock, arguing monetary policy should respond only if higher energy costs trigger more broad-based inflation. With growth remaining among the strongest of any major economy and inflation still within target, the central bank has room to wait.
The inflation outlook will be important for consumption as India heads into the festive season. Lower crude prices and improving monsoon rains could also ease inflation risks in the coming months, strengthening the case for an extended rate pause, economists say.
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