There are possibilities of Reserve Bank cutting key interest rates by 25 basis points in its policy review meet on August 9, if good rains bring down pulse price inflation, says a Bank of America Merrill Lynch (BofA-ML) report. Pulses inflation is running at 27 per cent on a poor summer RABI crop.
Good rains has resulted in pulses’ sowing for the kharif season jumping to 39 per cent above last year’s sowing. This is expected to pull down pulses prices by 20 per cent and cool CPI inflation to 5.1 per cent by March,” BofA-ML said in a research note. According to the global brokerage firm, RBI could possibly reduce the policy rates on three counts – first a good monsoon would bring down the inflation trend,
Second, in June core-CPI inflation has softened; and finally, high lending rates continue to constrain much awaited industrial growth.
However, there is surplus rains this season and the whole sale inflation accelerated for the third straight month in June hitting 1.62 per cent on costlier food and manufactured items. In the June policy review meet, RBI Governor Raghuram Rajan kept interest rates unchanged, quoting rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation. This could result in the reduction of interest in the ensuing RBI review meet.