India’s inflation remained steady in July, supporting expectations that the Reserve Bank of India will keep borrowing costs unchanged despite slight price increases, with improved monsoon conditions and currency reserves boosting confidence.
India’s inflation picture remained steady enough in July to reinforce expectations that the Reserve Bank of India will keep borrowing costs on hold, even as price pressures ticked slightly higher. Commerzbank said consumer inflation rose to 4.5% year on year from 4.4% in June, the strongest reading since December 2024, but still comfortably inside the RBI’s 2% to 6% target band. Core inflation held at 3.9%, suggesting the move was driven more by food and energy swings than by a broader acceleration in prices.
That backdrop helps explain why the central bank is widely expected to leave the repo rate unchanged at 5.25% for the foreseeable future. RBI Governor Sanjay Malhotra said earlier this week that inflation is “more or less under check”, and the bank’s current stance suggests policymakers are waiting for clearer evidence that higher food or fuel costs are feeding into the wider economy before considering a shift. Commerzbank noted that improved monsoon conditions and a partial retreat in crude prices have eased near-term risks, even though the RBI still expects inflation to rise in coming months and peak in the third quarter.
The RBI also has room to lean against currency volatility if needed. According to the central bank’s latest release, foreign exchange reserves stood at $693bn at the end of July, after a weekly rise of $10.5bn, equivalent to about 10.4 months of import cover. The bank said the increase was helped by inflows linked to its FCNR(B) deposit scheme, which had drawn $36.7bn by the end of July. The rupee has been trading in a relatively tight range in recent weeks, and traders have reported occasional dollar selling by the RBI to cushion pressure from higher crude prices.
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