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Declining food inflation to pull June CPI to sub-2%: BofAML

There are predictions of a normal monsoon, GST rates are unlikely to be inflationary

Press Trust of India  |  New Delhi 

Declining food inflation to pull June CPI to sub-2%: BofAML

Falling food is expected to pull June to the sub-two per cent level and may prompt the Reserve to go in for a 25 bps rate cut in its policy review in August, says a report.

"We have grown more confident of our call for a 25 bps RBI rate cut on August 2 with falling to 2.2 per cent in May from three per cent in April," of America Merrill Lynch (BofAML) said in a note, adding that with food still coming off, it should slip below two per cent in June.


According to official data, retail slumped to a record low of 2.18 per cent in May.

Earlier this month, the RBI left key unchanged as it wanted to be more sure that will stay subdued. The ministry's stand is has been consistently low warranting a rate cut.

in May is at the lower end of the RBI's projected headline band of two to 3.5 per cent in the first half the current financial year.

The report noted that RBI MPC's (monetary policy committee's) concerns are "dissolving". Food is easing further in June on a good summer rabi harvest and this should pull June below two per cent.

Moreover, there are predictions of a normal monsoon, and GST rates are unlikely to be inflationary, the report said, backing up.

Regarding the second round effect of the hike in (HRA) by the 7th Pay Commission, it said "the impact can hardly be material, given that the first round is largely statistical".

"In our view, time is running out for the RBI to cut rates. An August cut will signal a lending rate cut to banks before the busy industrial season begins in October. Delay will push the next lending rate cut to the next slack season commencing April," the report noted.

First Published: Tue, June 13 2017. 15:43 IST
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