Monsoon to play rate-cut spoilsport?

The Indian Meteorological Department (IMD) estimated the monsoon this year to be ‘above normal’. However, August rainfall data shows that monsoon has not only weakened, it has resulted in a deficit of 5% over the same period of last year.

With retail inflation falling to a five-month low of 5.05% for the month of August, industry’s hopes of getting an interest rate cut from the Reserve Bank of India (RBI), hence, might not be realised.

IMD says that during the first week of September, barring East and North-East India that received 58% more rainfall, every other region in the country reported less than normal rainfall.

Moreover, for the country as a whole, cumulative rainfall during this year’s monsoon, so far, been 4% below Long Period Average (LPA).

IMD, in its extended forecast said that the rainfall is likely to be 'normal to above normal' over East and North-East India and the South Peninsula during the next two weeks, adding, “Rainfall activity is likely to increase over many parts of central and adjoining north Peninsular India from 12 September onwards.”

However, the buoyancy of monsoon and its impact is likely to be clouded by a few questions, given the fact that monsoon has been recorded at 733.7 mm as against 762.3 mm (normal rain) in the June 1 to September 7, 2016 period, a shortfall of 4%.

With less than a month to go before the monsoon season ends this year, the 'above normal' prediction is unlikely to hold.

Despite this, kharif crop sowing has crossed last year’s mark comfortably as on September 9, 2016.

The Ministry of Agriculture, in a statement, said, “The total sown area as on September 9, 2016, according to the reports received from the various states, stands at 1,054.49 lakh hectare as compared to 1012.35 lakh hectare at this time last year.”

Rising food prices has been pushing inflation up which breached the nearly two-year peak in July before cooling off to 5.05% in August.

Food inflation, for the month of August 2016, came in at a four-month low of 5.91% as against 8.35% in July 2016.

Economic Affairs Secretary Shaktikanta Das said, "There has been significant moderation in pulses and vegetables, which mainly accounts for the drop in inflation to 5%."

source: tradingeconomics.com

"Going forward, we expect inflation to remain in the moderate zone and perhaps go down also, depending on pulses prices, which we are expecting to come down even further,” he said. 

But is this going to be enough for RBI's Urjit Patel to deliver a rate cut in his maiden policy next month?

"CPI inflation in the month of August at 5.1% is even better than our expectation of 5.5%," Care Ratings said.

"Lower food inflation and high base effect did help here. The CPI inflation number will hover around the 5%-mark in the next few months which will be taken positively by the RBI for deciding on interest rate cuts. But we do not expect a rate cut in the forthcoming policy in October." the agency said.