Normal monsoon may prompt rate cuts by RBI in August: report

New Delhi: Following normal monsoon forecast, the Reserve Bank of India is expected to go for a 25 basis points rate cut in key rates in its policy review meet in August, says a report.

According to a Bank of America Merrill Lynch, normal rains should help to push rural demand, especially after a relatively poor rabi harvest.

"We grow more confident of our call of a 25 bps RBI rate cut on August 1 after the India Met forecast? a normal south-west monsoon at 97 per cent of long period average," the global financial services major said in a research note.

According to the India Meteorological Department, the country is likely to witness a normal monsoon this year. The monsoon will be 97 per cent of long period average (LPA), which is normal for the season.

The four-month monsoon season from June to September provides about 75 per cent of the annual rainfall to the country, where GDP is still largely driven by the agriculture sector. Several parts of India are witnessing agriculture distress and a good rainfall is likely to provide some relief.

"Despite a relatively poor summer rabi crop, this (normal monsoon) should contain agflation in 2H18, by watering a good autumn kharif harvest," the report said. It further noted that with agflation (agricultural inflation) in check, inflation should average 4.3 per cent in 2018-19, within the RBI's 2-6 per cent inflation mandate.

In its first bi-monthly monetary policy for 2018-19, the RBI left the repo rate unchanged at 6 per cent. The MPC maintained the status quo for the fourth consecutive time since August last year.