India’s August inflation rose 4.8% yoy (DBSf 4.9%) from a revised 4.5% month before, firmest since December 2024. Food inflation continued to rise, driven by pulses, sugar, and dairy etc., while vegetables rose by a slower pace. Food (and bev) inflation quickened to 5.7% yoy, up from 2.1% in Jan26. After two years of normal monsoon, cumulative southwest rainfall this year is currently 15% below the long-term average, alongside slower build-up in reservoir levels, which could impact upcoming rabi crops as well. While retail fuel prices have been kept unchanged since May, volatile energy prices continue to pose upside risks to input costs and could gradually feed through to consumer inflation. Transport inflation jumped to 4.6% yoy in Aug vs 0.1% in Jan26. Core inflation (ex-food, fuel) is off its back, rising 4.2% yoy in Aug26. A gradual broadening of price pressures is likely to keep headline inflation above 5% in second half of the fiscal year, underscoring the need for a tighter policy bias. Add to this, recent developments, including a sustained rise in crude prices, tightening global financial conditions, firm domestic growth and signs of broadening in core pressures, strengthen the case for a shallow 50bp hike in second half of FY27, making October’s meeting a live one.
Liquidity managements steps continue to dominate onshore market price action. In a press interview, the RBI Governor assured that they have sufficient tools to withdraw surplus liquidity, playing up OMOs and swaps as potential measures, whilst dismissing a cash reserve ratio increase (CRR). Following few back-to-back VRRR auctions, the RBI announced three tranches of open market operations (bonds maturing FY29 and FY32) worth a cumulative INR 1trn, to be held on Sep 17, 21 and 28. These announcements fuelled a rise in yields, which were already inching up, tracking global counterparts. The rupee could face depreciation pressure on its return from a long weekend, not helped by a firm dollar ahead of a hawkish Fed meet this week.
Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.
Topic
Explore more
E & S Macro StrategyGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.