Retail inflation came in below the RBI's medium-term target for the twelfth month in a row

Consumer inflation eased to 3.15 per cent in July from 3.18 per cent in the previous month, government data showed on Tuesday. That meant that retail inflation - the rate of increase in consumer prices determined by the Consumer Price Index (CPI) - came in below the Reserve Bank of India's medium-term target of 4 per cent for the twelfth month in a row. Consumer inflation last month was lower than economists' estimates. Thirty economists polled by news agency Reuters from July 31 to August 6 had predicted consumer inflation to come in at 3.20 per cent in July.

The consumer inflation data supports the Reserve Bank of India's decision this month to cut the repo rate to a nine-year low of 5.4 per cent. Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks.

Analysts expect the central bank to cut rates once again in its scheduled bi-monthly review due in October. The RBI has so far this year reduced the key lending rate by 110 basis points - or 1.1 percentage point.

A poll by Reuters conducted during August 7-8 predicts the RBI to ease its benchmark lending rate by 25 basis points to 5.15 per cent in October. If that prediction comes true, it would be a repeat of a cutting spree last seen in 2000-01.

In its policy statement on August 7, the RBI said it sees consumer inflation remaining within its target range over a 12-month horizon.

The central bank projects retail inflation at 3.1 per cent in the second quarter and 3.5-3.7 per cent in the second half of the current financial year.