India Inflation Stays Below Target as Jakarta Eyes Bond Market

India inflation remained below the central bank’s target in May, while Jakarta municipal bonds moved closer to reality as the Indonesian capital explored new ways to fund major infrastructure projects.

Official data released on Friday showed that India inflation rose to 3.93% in May from a year earlier, up from 3.48% in April. Despite the increase, the figure remained below the Reserve Bank of India’s 4% target and came in lower than economists’ forecast of 4.02%. Following the release, government bonds extended their gains, with the yield on the benchmark 10-year bond falling three basis points to 6.89%.

The latest inflation figures arrived a week after the central bank left interest rates unchanged, signalling that policymakers want more clarity on price trends before making further adjustments. Recent government measures to attract foreign investment and support the rupee have also eased pressure on the central bank to raise rates.

However, rising energy costs continue to pose challenges. India relies heavily on imported crude oil, and the conflict involving Iran has driven global oil prices higher. The government has introduced temporary restrictions on diesel sales to ease pressure on state-owned fuel retailers, while the central bank recently increased its inflation forecast for the fiscal year ending March 2027 to 5.1% from 4.6%. Meanwhile, food inflation, which accounts for about 37% of the consumer basket, climbed to 4.78% in May from 4.20% in April.

Elsewhere, Jakarta municipal bonds are gaining momentum as city authorities seek alternative funding sources following budget reductions. Governor Pramono Anung Wibowo said the city aims to launch Indonesia’s first municipal bond within a year, with support from the Asian Development Bank and the World Bank.

The proposed bond issue could help finance infrastructure projects as Jakarta faces lower government transfers and explores new financing options, including a city wealth fund modelled on Indonesia’s sovereign investment fund.

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