June inflation likely nudged up, May factory growth rate to be steady

Economists expect June inflation at 5.10% compared to May's 5.01%

Indian data to be released in coming days is likely to show consumer price inflation nudged up slightly in June and factory output growth little changed in May, pointing to a gradual improvement in industry, according to a Reuters poll.

The median forecast from a survey of 30 economists this week put inflation at 5.10% in June compared to May's 5.01%.

The Reserve Bank of India, which has already cut the repo rate three times this year, is closely monitoring the effect of monsoon rains on inflation to determine whether there is leeway to ease policy further.

The RBI has targeted consumer price inflation at 6% by January and 4% by March 2018.

"If the monsoon revives in the next fortnight and sowing remains on track during July, which is a critical month for kharif planting, risks related to food inflation would recede, boosting the likelihood of a reduction in the repo rate," said Aditi Nayar at ICRA.

A Reuters poll released last week showed economists expected the RBI to keep the policy rate unchanged at a policy review next month, but cut it to 7.0% in the final quarter.

The RBI last cut its policy repo rate on June 2, lowering it to 7.25%, bringing the total reduction since it began easing in January to 75 basis points.

June's rainfall data has been encouraging and fears India might experience a second year of drought have remained unfounded. But July is a key month for planting crops and poor rains could drive food prices up sharply.

The poll's median forecast showed industrial production rising 4.1% in May, matching April's growth.

Data released on June 30 showed core infrastructure output grew 4.4% in May, its first rise in three months and fastest in six months.

"On balance, initial signs of pick-up in the core sectors alongside lagged recovery in domestic and external demand conditions point to a slow-paced improvement in the production trend this year," said Radhika Rao at DBS.

The volatile output data stands in contrast to other recent activity indicators that showed weak overall demand slowed factory growth while India's service sector contracted for a second month in a row in June.