Food inflation rises to 16.90%; fuel price meeting eyed

India's food price index rose 16.90% in the year to June 12, higher than the previous week's annual reading of 16.12%, government data released on Thursday showed.

The fuel price index remained unchanged at 13.18% in the year to June 12.

The yield on the 10-year benchmark bond rose one basis point to 7.62% after the data. It had ended at 7.60% on Wednesday.

The RBI has raised rates twice, by a total of 50 basis points, since mid-March to tame inflation and may deliver another hike of at least 25 basis points either at the July 27 policy review or even earlier.

Markets' focus now turns to Friday's fuel price meeting for rate cues.

A government panel will meet on Friday to decide on raising domestic fuel prices, a move that may further stoke inflation and spark off protests from the opposition.

With the annual headline inflation in May already above 10%, pressure has been mounting on the RBI to raise rates ahead of its policy review, but a liquidity squeeze in the markets may have held it back.

RBI governor Duvvuri Subbarao last week said although inflation is getting more generalised and demand-side pressures are building, the bank for now will maintain its stance of a calibrated exit from loose monetary policy.

Policymakers, however, have not yet ruled out the possibility of an off-cycle rate hike. Finance minister Pranab Mukherjee told Reuters Television in an interview on Tuesday that the RBI was prepared to act "as and when considered necessary."

Food inflation is near the 17-percent mark, but Mukherjee said it can be tamed by a strong harvest and increased output of key food items.

The country's chief statistician Pronab Sen on Wednesday said headline inflation , the most closely watched inflation gauge in India, in June could be lower than 10% because of a weakening base effect.

However, India's annual monsoon rains, vital to cool food prices, were 11.1% below normal for June 1-23, sources at the weather office told Reuters on Thursday.

If the pace of progress of monsoons lags even in July, which is a critical rain-bearing month, it could further stoke food inflation.