Indian Rupee: Contained inflation supports RBI pause – Commerzbank
Commerzbank’s FX team notes India’s July CPI rose slightly to 4.5% year-on-year but stayed within the Reserve Bank of India’s target band, with core inflation steady at 3.9%.
Commerzbank’s FX team reports that India’s July Consumer Price Index (CPI) increased to 4.5% year-on-year, staying within the Reserve Bank of India’s target range. Core inflation remained steady at 3.9%. The bank anticipates the Reserve Bank of India (RBI) to maintain the policy repo rate at 5.25%, as food and energy pressures are contained.
FX reserves, near USD693 billion, provide sufficient capacity for managing USD/INR volatility. July inflation, slightly above expectations at 4.5% yoy, marked the highest reading since December 2024. Despite this, it remained within the RBI’s 2-6% target range. Year-to-date, inflation averaged 3.6%, below the RBI’s 4.0% midpoint target.
Contained inflation suggests that the RBI may keep the policy repo rate unchanged at 5.25% for the foreseeable future. RBI Governor Sanjay Malhotra previously indicated that inflation is "more or less under check." While inflation is expected to rise in the coming months and peak in Q3, improved monsoon conditions and a partial retreat in crude oil prices have reduced near-term inflation risks, supporting the RBI’s neutral policy stance.
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