A Bank of America Merrill Lynch (BofA-ML) report has said that the Reserve Bank has is expected to cut key interest rates by 25 basis points in its policy review meet on August 9, if good rains damp pulse price inflation. Commenting on the issue, a BofA-ML told the media, “With good rains, pulses' sowing for the kharif season has jumped 39 per cent above last year's sowing.
This should pull down pulses prices by 20 per cent and cool CPI inflation to 5.1 per cent by March." "If good rains damp pulses prices inflation, as we expect, CPI inflation should be well on track to the RBI's 5 per cent March 2017 target," he added.
According to the global brokerage firm, the Reserve Bank could cut policy rates for three reasons - first a good monsoon would cover agflation; second, June core-CPI inflation has softened; and finally, high lending rates continue to constrain May industrial growth.
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