June retail inflation breached the Reserve Bank of India’s 4% target, fueling expectations of monetary tightening in the second half of FY27.
India’s retail inflation rose to 4.38% in June, marking the first time in 16 months it has exceeded the central bank’s 4% target. The increase was driven by higher food and fuel prices, alongside a revision in petrol and diesel costs, though lower gold prices partially offset the rise.
Analysts had anticipated inflation to remain near the RBI’s upper tolerance band of 6%, but the June print surpassed expectations. Economists cited uneven monsoon progress and geopolitical tensions in West Asia as key risks to the inflation outlook, with some forecasting an average of 5.2% for FY27.
Market expectations now point to a potential 50 basis points of rate hikes in the second half of FY27, as policymakers weigh the need to curb inflation against growth concerns.