Mumbai: Following normal monsoon forecast, the Reserve Bank of India is expected to go for a 25 basis points rate cut in key rates in its policy review meet in August, says a report.
According to a Bank of America Merrill Lynch, normal rains should help to push rural demand, especially after a relatively poor rabi harvest.
“We grow more confident of our call of a 25 bps RBI rate cut on August 1 after the India Met forecast? a normal south-west monsoon at 97% of long period average,” the global financial services major said in a research note.
According to the India Meteorological Department, the country is likely to witness a normal monsoon this year. The monsoon will be 97% of long period average (LPA), which is normal for the season.
The four-month monsoon season from June to September provides about 75% of the annual rainfall to the country, where GDP is still largely driven by the agriculture sector. Several parts of India are witnessing agriculture distress and a good rainfall is likely to provide some relief.
“Despite a relatively poor summer rabi crop, this (normal monsoon) should contain agflation in 2H18, by watering a good autumn kharif harvest,” the report said.
It further noted that with agflation (agricultural inflation) in check, inflation should average 4.3% in 2018-19, within the RBI’s 2-6% inflation mandate.
In its first bi-monthly monetary policy for 2018-19, the RBI left the repo rate unchanged at 6%. The MPC maintained the status quo for the fourth consecutive time since August last year.