Retail inflation rate in India hit a seven-month high in May from higher food prices, but stayed below the RBI's target, thus leaving room for potential interest rate cut in the next monetary policy review to help the country's sluggish economy.

Government data released on Wednesday, showed that the all-India general CPI (Consumer Price Index) inflation rose to 3.05 percent, up from the revised 2.99 percent in April.

Core CPI inflation, which strips out food and fuel prices, eased to 4.23 percent in the month of review.

Inflation has sharply come down from a peak of more than 12 percent in 2013, and has now stayed below the Reserve Bank of India's medium-term target of 4 percent for ten consecutive months.

Amid subdued price pressures, and increasing concerns of a slowdown in the economy's growth, the RBI has cut its key policy rate three consecutive times since February.

The most recent reduction was last week, when the RBI lowered its repo rate by 25 basis points to 5.75 percent and changed its policy stance to "accommodative" to meet the needs of the economy and a banking system laden with bad debts.

The combination of low growth and low inflation is particularly difficult for farmers, who benefit from higher food prices.

Retail food prices, rose 1.83 percent in May from a year earlier, up from 1.10 percent in April.