Headline inflation moderated to 6.8% YoY after spiking to 7.4% in July. It was driven by softer food prices, which constitute 46% of the CPI basket. They remained high at 9.2% YoY but softer than 10.6% in July.

On an encouraging note, core inflation, which strips out food and energy, eased for the second straight month to 4.8% from 5% in July. This was despite strong domestic demand conditions and reports of rising cost pressures.

Currently, the RBI is in a wait-and-see mode. The next RBI meeting is on 6 October and they are expected to leave rates unchanged at 6.50% for the rest of the year.

There are no clear-cut drivers and RBI will be content with the relative stability in USD/INR.