India inflation at 4.45% in July supports RBI's hold stance

India's consumer price inflation rose for a ninth consecutive month in July, firming expectations that the Reserve Bank of India will raise interest rates later this year.

India's consumer price index rose 4.45% in July from a year earlier, a ninth straight monthly acceleration, as food costs climbed 5.5% and transport inflation topped 7%, firming the case for a Reserve Bank of India rate hike later this year.

"CPI inflation is likely to remain unchanged in July, with upward pressure largely contained to food and fuel," said Gaura Sen Gupta, chief economist at IDFC First Bank. Underlying price pressures, as reflected by core-core inflation excluding food, fuel and precious metals, remained low at 2.1% in July, marginally higher than 2% in June, she added.

The reading came in slightly below the 4.5% consensus in a Reuters poll but above the 4.40% median estimate in a Bloomberg survey of economists. It marked the seventh straight month inside the RBI's 2%-6% tolerance band. Food, which accounts for roughly 35% of the CPI basket, rose 5.5%, while personal transport and goods transport inflation each exceeded 7%, according to the Ministry of Statistics and Programme Implementation. In the foreign exchange market, USD/INR slipped 0.05% to trade around 95.3350.

The sustained acceleration strengthens the case for the RBI to raise its benchmark repo rate from 5.25%, where it has held for four consecutive policy meetings. The central bank lowered its full-year inflation forecast to 5% from 5.1% at its August meeting, but with inflation running above its 4% medium-term target for a second straight month, markets are pricing a greater probability of tightening before year-end.

The RBI's August policy statement trimmed the Q2 forecast to 4.7% from 5.1%, retained Q3 at 5.9%, and marginally raised Q4 to 5.5% from 5.4%. The central bank has kept the repo rate unchanged, diverging from several Asian peers that have hiked to counter inflationary pressures from disrupted global energy supply chains during the Iran war. That divergence has kept the rupee under pressure, with USD/INR hovering near 95.3 after touching multi-month lows earlier in the summer.

"The improvement in monsoon activity during July supported crop conditions, but did little to ease near-term supply concerns as the recovery remained uneven across states, and failed to contain the hike in food prices during the month," said Kanika Pasricha, economist at Union Bank of India.

Policy Path Hinges on Monsoon, Oil

The food-led nature of the inflationary pressure should keep the Monetary Policy Committee in wait-and-watch mode, said Sujan Hajra, chief economist at Anand Rathi Group. He expects the repo rate to remain unchanged, with policy staying data-dependent and carrying a mildly hawkish bias.

A favourable base effect helped temper the July reading — CPI-linked inflation eased from 2.3% in June 2025 to 1.6% in July 2025 — but economists in a Mint poll of 18 forecasters had projected a range of 4.3% to 4.6%, with all but two expecting a marginal pick-up from June.

Looking ahead, recent trends in monsoon rainfall and kharif sowing offer some comfort, but uncertainty remains over the monsoon's performance through the rest of the 2026 season. If food prices continue to climb, the RBI may be forced to abandon its pause and raise rates before the December policy meeting, which would tighten liquidity and pressure rate-sensitive sectors including banking, real estate and consumer durables. A hike would also likely attract foreign institutional inflows seeking higher yields, potentially supporting the rupee against the dollar.

This article is for informational purposes only and does not constitute investment advice.