Recent inflation data from India has prompted several economists to scale back forecasts for imminent interest-rate increases, after consumer prices showed a more restrained rise in June than some had expected.
Official figures put retail inflation at 4.38% in June, above the Reserve Bank of India’s 4% target but marking the first time it has breached that level in 17 months. For the April-June quarter, inflation averaged 3.9%. Economists currently estimate that core inflation - which strips out volatile items - was about 4% in June.
In a note published Monday, Citi economists projected that full-year inflation could average 4.7% for the current fiscal year, which would be below the Reserve Bank of India’s June projection of 5.1%. Citi’s chief India economist, Samiran Chakraborty, said the bank is likely to trim its headline inflation forecast by roughly 20 basis points in August, reducing the chance of an immediate rate hike.
Chakraborty added that any further tightening would depend on core inflation remaining elevated: "Future rate hikes might happen only if core inflation sustains above 4.5%, which is unlikely to happen soon and hence we do not foresee a rate hike in 2026."
ANZ has also adjusted its view. The brokerage has withdrawn its previous call for a rate rise in August and now expects the monetary policy committee to hold policy rates steady. ANZ had earlier anticipated two 25-basis-point increases in August and October, but it now says the committee has time to wait and assess inflation risks before making changes.
The revisions from Citi and ANZ reflect a shift in near-term policy expectations tied directly to the latest inflation readings. Both the headline and core measures will remain focal points for policymakers as they weigh the balance between containing price pressures and maintaining growth-supportive conditions.
What this means
- June’s retail inflation print at 4.38% and a quarterly average of 3.9% have diminished the immediate likelihood of rate hikes.
- Citi now sees full-year inflation averaging 4.7%, below the central bank’s 5.1% projection, and expects the RBI to lower its headline forecast by about 20 basis points in August.
- ANZ no longer expects a rate increase in August and believes the monetary policy committee can take additional time to evaluate inflation dynamics.
Policy decisions will hinge on incoming data, with core inflation and evolving risks to the price outlook determining whether the central bank resumes tightening or remains on hold.