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India's July retail inflation dims chances of rate cut

Reuters
Filed on August 14, 2020
India, inflation, lockdowns, coronavirus

The steady rise in coronavirus cases has disrupted the supply chain as lockdowns continue at regional levels.

India's retail inflation rose to 6.93 per cent in July on higher food prices, remaining above the RBI's medium-term target for a 10th straight month, according to government data released on Thursday.

July's figure was higher than the 6.15 per cent forecast in a Reuters poll of analysts and 6.23 per cent recorded in June.
Food prices soared due to supply-side disruptions caused by the coronavirus lockdown. They rose 9.62 per cent compared to a jump of 8.72 per cent in June.

The steady rise in coronavirus cases has disrupted the supply chain as lockdowns continue at regional levels.

Fearing a sharp rise in inflation the Reserve Bank of India last week kept interest rates on hold, after reducing the repo rate by a total of 115 basis points since February. RBI has set its medium term inflation target at 4 per cent.
India's economy is expected to contract more than 4.5 per cent in the current fiscal year, but some analysts do not expect the central bank to cut rates further this year.

"Given the distortions in supply chains and transportation, I don't expect a rate cut in the remaining part of 2020," said Rupa Rege Nitsure, economist at L&T Financial Holdings.

Core inflation for July ranged between 5.8 per cent and 5.9 per cent, according to two analysts.

Monsoon rains are expected to be 104 per cent of a long-term average in August and September, indicating bumper harvests and helping to alleviate some of the economic damage caused by the pandemic.


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