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Majority of the members of the Monetary Policy Committee (MPC) expressed caution on the pickup in retail inflation in the near-term, showed the minutes of the monetary policy meeting held on August 8-10.

RBI Governor Shaktikanta Das cautioned that headline inflation is expected to harden significantly in July-August, driven by the spike in tomato and other vegetable prices, the minutes showed.

Another member Rajiv Ranjan noted that the forecast of continuation of uneven monsoon in the next two months together with an El Nino event, amid volatile global food prices, makes the food price outlook uncertain.

Ashima Goyal, another member in the six-member MPC panel, said important factors including the progress of the rest of the monsoon and possible supply-side action needs to be watched while deciding future rate course.

Also, further pass through of past rate hikes, the behavior of food prices and the evolution of core inflation, have all to be carefully observed, Goyal said.

As expected, the Monetary Policy Committee (MPC), which sets interest rates in India, on August 10 kept the repo rate unchanged, citing the continuing threat from inflation in Asia's third-largest economy.

The decision came in the wake of a recent spike in inflation triggered by high prices of food items. One basis point is one-hundredth of a percentage point. The MPC kept the repo rate, or the rate at which the central bank lends short-term funds to banks, at 6.5 percent.

The language of the monetary policy suggested that the RBI is clearly on a wait-and-watch mode as inflationary fears continue to loom large over the economy despite a decline in the recent months.

Since May 2022, the RBI has hiked the rates by 250 bps as part of its fight against inflation. India's headline retail inflation rate crashed past the upper bound of the RBI's 2-6 percent tolerance range in July and shot up to a 15-month high of 7.44 percent, spurred on by a massive increase in vegetable prices.

Retail inflation had hit 4.81 percent in June from 4.31 percent in May, pushed up by a rise in vegetable prices and fading away of the favourable base effect.

At 7.44 percent, the Consumer Price Index (CPI) inflation print for July was a huge 257 basis points (Bps) higher than the revised June number of 4.87 percent and is the 46th month in a row that it has come in above the RBI's medium-term target of 4 percent.

One basis point is one-hundredth of a percentage point.

In August monetary policy, the central bank made an upward revision to its inflation forecast for 2023-24, raising it by 30 bps to 5.4 percent.

The RBI latest CPI inflation projections for 2023-24, assuming a normal monsoon, was revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. CPI inflation for Q1:2024-25 is projected at 5.2 per cent.

"Given the likely short-term nature of these shocks, monetary policy can look through high inflation prints caused by such shocks for some time," RBI Governor said during monetary policy address on August 10.

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