Expect no change in RBI policy rates in August: CARE

CARE Ratings' analysis of CPI inflation

Retail Inflation: June 2015The retail inflation edged higher for the second consecutive month in June’15. It continued to remain above the 5% mark registering 5.4% inflation in June’15 as against 5.13% in the May’15 and much higher than CARE’s own estimate of 4.8% for the month. This rise in inflation is attributable largely to the rise in prices of the consumer food basket in anticipation of a deficient monsoon and clothing and footwear segment to a certain extent.

Consumer Food Price InflationThe consumer food inflation registered a significant rise during the month. The consumer food price inflation rose to much higher levels at 5.48% in June’15 as against 4.8% in May’15 and 5.1% in April’15. The increase in food prices is mainly the result of the anticipation of subdued monsoons.

CARE’s View

The anticipation of weaker monsoon has to a large extent fed into the food price inflation. However, based on the statistics of the Indian metrological department (IMD), it may be noted that cumulative rainfall so far between 1st June- 12th July’15 has been only 2% below normal rainfall indicating bettering monsoon conditions across the country.

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In addition to this, as per the data released by the ministry of agriculture as of 10th July’15 the sowing of Kharif crops is gathering pace. The total sown area for Kharif crops as on 10 July 2015 stood at 445.11 lakh hectares compared with 275.10 lakh hectares at this time last year. Significant increase has been recorded in oilseeds sowing this season; it has reached 101.26 lakh hectares compared with 22.24 lakh hectares at this time last year. Similarly pulses sowing have touched 32.61 lakh hectares this season compared with 22.71 lakh hectares at this time last year.

Given the above, the inflation is expected to be stable with increased hopes of better than expected monsoons.

No change in RBI policy rates is expected in August.

DisclaimerThis report is prepared by Credit Analysis & Research Limited (CARE Ratings). CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report.

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