Notwithstanding that the monsoon rains has remained below normal and concerns are building over a failed season, retail inflation is likely to have a low 7 per cent handle in the current financial year, says a Barclays report.

Monsoon rains are very crucial for the agriculture-driven Indian economy, as nearly 60 per cent of agricultural area is still rain-fed and rains have implications for both inflation and growth.

According to the global financial major, the new government has moved fast, by inducting key vegetables into the Essential Commodities Act and raising the minimum export price for onions, which helped to bring some stability to wholesale prices.

“If these steps, coupled with IMD’s projection of a modest increase in rainfall, are realised, we expect retail inflation – the RBI’s key focus at the moment, to have a low 7 per cent-handle, on average, in FY 14-15,” Barclays said in a research note.

Barclays further said that “we have already seeing signs that inflation is turning more manageable”.

According to the RBI, inflation could fall to around the mid-7 per cent range by December, and around 8 per cent by March 2015.

“With a likely softer inflation trajectory, a largely stable outlook for the INR and only a limited uptick in growth momentum, we think there would be greater room for a more balanced monetary policy stance in H2 14,” the report said.

For the Reserve Bank of India, this year’s monsoon rainfall will likely be a key determining variable in calibrating monetary policy. The RBI adopted a marginally dovish stance in its June policy statement.

WPI inflation showed a big uptick in May, and CPI inflation has remained relatively sticky. WPI inflation rose to five months high of 6.01 per cent in May from 5.20 per cent in the previous month mainly driven by higher prices of food items.

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