The Reserve Bank of India is expected to keep its key interest rate on hold on Thursday but adopt a more hawkish tone as recent food price increases are likely to take hold, economists and market participants said.
The RBI said last month that a spike in food prices had driven a rise in headline inflation in June, confirming its view that the fight against inflation is far from over.
However, food prices have risen more than expected this year, and for longer.
“Hawkish rhetoric is likely to intensify further at Thursday’s meeting,” said Shilan Shah, deputy chief emerging markets economist at Capital Economics.
DBS expects the evolving inflation trends to pose an upside risk of 80-100 basis points to the RBI’s current forecast of 5.2% in the third quarter.
