India's inflation rate rose to 4.45% in July, but it is unlikely to prompt the central bank to raise interest rates in the coming months.

Driven by rising food prices, India's retail inflation rate increased in July, but it is still unlikely to prompt the Reserve Bank of India to raise interest rates in the coming months. The consumer price index in July rose 4.45% compared to the same month last year, marking the second consecutive month above the Reserve Bank of India's mid-term target of 4%, and is essentially in line with media forecasts of 4.5%. However, the inflation rate in July remains within the Reserve Bank of India's tolerance range of 2%-6%. The Reserve Bank of India kept its benchmark policy rate unchanged last week, awaiting clearer evidence to determine whether inflationary pressures have become more widespread. This sets India apart from other regional economies like Indonesia and the Philippines, which have raised interest rates in response to rising energy prices and currency fluctuations. The Reserve Bank of India still has room to be patient for now, but this will not last indefinitely, said Alexandra Hermann Prasad, chief economist at Oxford Economics. An increasing amount of evidence suggests that second-round inflation effects are forming, and mid-term inflation expectations are rising, making supply shocks harder to ignore. We expect policymakers to remain on hold in October but will raise rates by 25 basis points in December.