A Predictable Rise: Inflation Will Remain High in the Foreseeable Future

The MPC Is Cornered Between Two Numbers, Not One

A repo rate held steady for a fourth straight meeting looks, on the surface, like the RBI doing nothing. It is actually the RBI doing the only thing it reasonably can, wedged between two numbers pulling in opposite directions: a 4.45 percent inflation print that keeps climbing and a PMI reading that just posted its weakest expansion since March 2022.

Cutting rates would ease the growth slowdown but risk feeding inflation already running above target. Holding rates fights inflation but does nothing for a private sector showing its clearest signs of losing momentum in over four years.

There is no move here that solves both problems and understanding why is more useful than debating whether the RBI chose correctly. Start with what's actually driving the inflation number, because it isn't demand overheating - the kind of inflation interest rates are actually built to fight.

Core inflation, stripped of precious metals, is sitting comfortably below 3 percent. The pressure is coming from food and energy, categories where a rate hike or cut barely moves the needle. Garlic prices up 35 percent and ginger up 84 percent reflect crop-specific supply shocks, not excess money chasing goods.

A small restaurant owner facing 7.75 percent food-service inflation isn't dealing with too much consumer demand - they're dealing with input costs that rose in March through May and haven't come back down, even after LPG price cuts, because a single subsidy adjustment doesn't undo months of accumulated margin damage.

The mechanism connecting India's inflation number to a port on the Black Sea is worth tracing precisely, because it's not obvious from the CPI print alone. Russia supplied nearly half of India's crude imports in June. When Ukrainian strikes threaten Novorossiysk, a critical Russian export terminal, the risk isn't that oil stops flowing tomorrow - it's that freight and insurance premiums on that route rise immediately, raising India's landed energy cost before a single barrel's price actually changes.

Add a rupee that depreciated 1.6 percent in the same window and imported inflation - the cost of anything priced in dollars becoming more expensive purely because the rupee buys less of it - compounds on top of the food shock.

None of this responds meaningfully to a repo rate change; supply-side and imported inflation are precisely the kind of pressure monetary policy is worst equipped to control. That's why the MPC's hold isn't indecision - it's an honest acknowledgment that its main tool doesn't fit the actual problem.

Cutting rates to support the weakening PMI would risk validating already-elevated inflation expectations without addressing what's actually pushing prices up. Holding steady doesn't fix the vegetable market or the Black Sea shipping lanes either, but it at least avoids adding a second, self-inflicted inflation driver to two the RBI never controlled in the first place.

For an aspirant, the real lesson here isn't "inflation went up, RBI held rates"

• it's that inflation-targeting monetary policy has a structural blind spot for supply shocks and India's exposure to both erratic monsoons and a geopolitically fragile crude import chain means that blind spot gets tested often.