Retail inflation to remain elevated: BofA-ML

Retail inflation is expected to remain elevated at 5.6 per cent in May but the recent spike in food inflation would be "temporary", says a report.
According to the global financial services major Bank of America Merrill Lynch (BofA-ML), the consumer price index-based inflation concerns are largely "overdone".
"We are not too concerned about food inflation derailing another RBI rate cut as the recent spike in food inflation is expected to be temporary," BofA-ML said in a research report.
According to the report, food inflation is expected to come-off after good rains this monsoon season as the fresh harvest starts arriving October-November onwards.

"Even though the CPI inflation is expected to remain elevated this summer and we are tracking May CPI inflation, out June 13, at 5.6 per cent, we expect the RBI to look through this temporary weather shock," BofA-ML said.
Retail inflation soared to 5.39 per cent in April on higher food prices, reversing a downward trend seen in recent months.

Regarding the Reserve Bank's monetary policy stance, the report noted that once the monsoons start to pan out in line with the Indian Met's forecast of 106 per cent of normal rains, RBI might got for a 25 bps cut on August 9.

Meanwhile, the Australian Weather Bureau (AWB) has declared that mid-May will likely mark the end of the 2015-16 El-Nino.
Earlier in April, RBI reduced its policy rate by 0.25 per cent to 6.5 per cent. While this was the first rate cut after a gap of six months, RBI has lowered its policy rate by 1.5 per cent cumulatively since January 2015.
However, the industry still wants further rate cuts from RBI to boost investment.