Inflation is expected to have picked up to a near-two-year high in July as food prices relentlessly rose, according to economists in a Reuters poll, who also predicted factory output improved in June.
Other central banks have been loosening policy but with inflation above its target—and expected to run higher—the Reserve Bank of India kept its key repo rate on hold at outgoing Governor Raghuram Rajan's final meeting on Tuesday.
The RBI has cut its key repo rate by a cumulative 150 basis points (bps) to 6.50 per cent since January 2015 and now has less room to ease further. It is expected to slice another 25 bps later this year, then hold steady until at least the end of 2017.
Retail inflation rose to 5.90 per cent in July from a year ago, up from 5.77 per cent in the previous month, the poll of nearly 30 economists showed.
Still, a number of economists were not too worried about inflation trending higher, attributing it to only a few food items, unlike in some of India's counterparts such as Brazil which have seen persistently higher inflation.
"The current episode of high food inflation is different ... as it is driven by a surge in a few commodities—pulses, sugar and vegetables. During the financial year 2013-14, India had witnessed double-digit inflation in nearly all food items - including cereals," wrote Jay Shankar, chief India economist at Religare Capital Markets.
"We may see some near-term respite," he added, citing an improvement in farm output following a good monsoon this year as the main reason for food price rises to ease.
Wholesale price inflation likely picked up last month to 2.55 per cent from 1.62 per cent in June, according to the poll.
Factory production in June was seen 1.5 per cent higher than a year ago, led by a surge in output from eight core industries, also known as the infrastructure industries, the poll found.
India's infrastructure output, which accounts for nearly a third of the total industrial production, grew an annual 5.2 per cent in June, its fastest pace in two months, driven by a swell in output of cement, coal and electricity.