Indian Rupee: Benign inflation reinforces RBI pause – DBS

DBS Group Research economist Radhika Rao analyzes India’s July inflation data and its implications for the Reserve Bank of India. She notes that benign core inflation and limited spillovers from external shocks support a continued RBI policy pause. The report also discusses El Nino-related monsoon risks, real policy rate cushions, and stable 10-year bond yields around 6.75-6.85%.

Benign CPI supports extended RBI hold

"July’s inflation release validated the RBI monetary policy committee’s decision to keep rates on hold this month."

"Despite Brent crude prices remaining above year-ago levels on a year-to-date basis, we do not anticipate a further increase in domestic pump prices."

"Benign core measures and absence of generalised pickup in price pressures support our baseline call for the central bank to stay on hold at the next review."

"Official inflation projections imply inflation of around 5.3-5.5% over the year ahead, compared with a repo rate of 5.25%, implying a near-zero real policy rate buffer."

"Onshore markets have been ambivalent to volatile moves in global oil benchmarks in recent weeks, while 10Y bond yield hovers within 6.75-6.85%."