With Inflation peaking, the Reserve Bank of India is expected to cut its rates by 25 basis points in August if the monsoon is normal, according to global financial services major Bank of America Merrill Lynch (BofAML). It says that inflation risks in India are overdone.
January inflation stood at 5.1 percent, a shade below December's 5.2 percent, and BofAML is tracking February inflation at 4.7 percent with tomato/onion prices slipping.
"We expect the RBI MPC to look through the jump in inflation to 5.4 percent in April-June, as it is driven by base effects. Against this backdrop, we expect the RBI MPC to cut rates by a final 25 bps in August if the La Nina materialises," BofAML said in a research note.
The southwest monsoon gets a boost from the La Nina phenomenon.
"We estimate FY19 (2018-19) average inflation at 4.8 percent (adjusted for June quarter base effects), well within the RBI's 2-6 percent inflation target," the report further said.
On 7 February 2017, RBI kept its key policy rate unchanged at 6% for the third consecutive time.