CPI inflation for April is expected to slip to 3.2 per cent from 3.8 per cent in March, well within the RBI’s 2-6 per cent target, says a Bank of America Merrill Lynch (BofA-ML) report.
According to the global financial services major, food prices are likely to fall on a good summer rabi harvest and this in turn is expected to bring CPI inflation down.
“We expect April CPI inflation to slip to 3.2 per cent from 3.8 per cent in March — well within the RBI’s 2-6 per cent target — on falling food inflation,” BofA-ML said in a research note.
According to official data, retail inflation jumped to a five-month high of 3.81 per cent in March, while inflation based on wholesale price index (WPI) slipped to 5.7 per cent.
BofA-ML further said based on sowing data, it is expecting bigger oilseeds and pulses output.
Moreover, while the acreage has shrunk, sugar prices are easing on ample stocks and removal of duty on import of up to 0.5 million tonnes of raw sugar by June 30.
Besides, delay in El Nino may lead to good South-west monsoon, it added.
On RBI’s policy stance, the report said that the central bank may go for a 25 bps rate cut in its August policy review.
The global brokerage firm has cited three reasons for an August rate cut — April inflation is likely to slip to 3.2 per cent, a receding El Nino could lead to a good monsoon and oil imported inflation fears are also receding.
The Reserve Bank in its monetary policy review meet on April 6 kept the repurchase or repo rate — at which it lends to banks — unchanged at 6.25 per cent but increased the reverse repo rate to 6 per cent from 5.75 per cent.