RBI may cut rates by 25 bps on August 9

The Dollar Business Bureau

The Reserve Bank of India (RBI) is expected to slash key interest rates by 25 basis points in its upcoming August 9 policy review meet, if pulses price inflation comes down on account of good weather, said Bank of America Merrill Lynch (BofA-ML) in a report.

“With good rains, pulses’ sowing for the kharif season has jumped 39% above last year’s sowing. This should pull down pulses prices by 20% and cool CPI inflation to 5.1% by March,” the research note said.

Pulses inflation is currently running at 27% on a poor summer rabi crop.

The global brokerage firm said the RBI could cut policy reasons on three reasons. First, a good monsoon will reduce agiflation, second, the core-CPI inflation has softened in June and third, high lending rates have constrained industrial growth in May.

“If good rains damp pulses prices inflation, as we expect, CPI inflation should be well on track to the RBI’s 5% March 2017 target,” the report noted.

BofA-ML has also cut down its March CPI inflation forecast from 5.7% to 5.1%, which is in line with the RBI’s earlier 5% target set earlier, with rains expected to slash pulses prices further.

The wholesale inflation in June increased for the third straight month, as it hit 1.62% on costlier food and manufactured products. The retail inflation, too, hit a 22-month high at 5.77% in June.

In the RBI June policy review meet, Governor Raghuram Rajan had kept key interest rates unchanged, citing rising inflationary pressure.