A pause with abundant caution

Despite the current surge in CPI inflation, bulk of the rise came from food prices rather than in a broad-based fashion

After a spell of brisk rate hikes during the large part of 2022-23, the Monetary Policy Committee (MPC) surprised the market by keeping the repo rate constant at 6.5 per cent in April. The pause by the Reserve Bank of India (RBI) was vindicated by softening of consumer price index (CPI) inflation to around a level of 4.5 per cent during the summer months. Subsequently, the RBI continuing with a pause on the repo rate in June was no surprise.

However, since then, inflation has surged again. We estimate headline CPI for July (scheduled for release in mid-August) to reach