Retail inflation in December probably accelerated to 6.7% in December from 5.5% in the previous month, according to the median estimate of 37 economists surveyed by Bloomberg. Inflation data is set be announced later today. The median forecast in the Reuters poll of nearly 50 economists predicted India's annual consumer inflation rose to 6.20% in December from November's 5.54%.

The RBI is mandated to keep the headline inflation in the 4-6% band.

Citing inflation concerns, the RBI kept interest rates unchanged in December following five cuts totaling 135 basis points earlier in the year.

The central bank will make its next interest rate decision on February 6, days after Finance Minister Nirmala Sitharaman presents the Union Budget.

The spike in inflation and expectations of fiscal slippage are weighing on the outlook for Indian sovereign bonds. For now though, sentiment is being buoyed by the RBI’s Operation Twist, in which the central bank has bought longer-maturity bonds and sold shorter-term ones.

Rising oil prices add a new risk to inflation in India, adding to concerns over rising vegetable prices. Oil briefly rose above $70 a barrel last week for the first time since September amid US-Iran tensions, and while they’ve since eased, prices remain elevated compared to last year. India is the world’s third-biggest oil importer.

Analysts say that 6%-plus inflation may bring an end to the RBI’s easing cycle. (With Agency Inputs)