India's rising inflation means that the central bank will likely refrain from engaging in further rate-cuts in the near term, Capital Economics Asia Economist Daniel Martin said.
According to the economist, though June's modest rise in whole price inflation might not be a major concern for policymakers, the growth in consumer price inflation is a cause of worry, leaving no room for reducing interest rates in the near term.
Capital Economics forecasts that the Reserve Bank of India (RBI) will likely wait until consumer price inflation records steeper declines, probably until late in the year, before lowering rates further.
The absence of further policy loosening will result in India's economic recovery remaining subdued, and growth is unlikely to rise above 6 percent until 2015, the firm said.
Capital Economics observed that the rise in inflation is disconcerting in the context of the rupee's recent decline, which fell by 11.5 percent against the US dollar since the start of May, making it one of the worst-hit currencies in the emerging market.
Against this backdrop, further rate cuts in the near term would work against the RBI's recent efforts to stem the rupee's fall.
Government data released Tuesday showed that inflation as per the wholesale price index accelerated to 4.9 percent in June from 4.7 percent in May.
The rise in inflation was mostly due to an uptick in prices for primary food products, which are largely driven by domestic factors. Core inflation, excluding food products, remained very low at 2.1 percent.
Separate data that came out last week showed that consumer price inflation accelerated to 9.9 percent in June from 9.3 percent May.
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