: India's retail inflation will likely fall to 4% in July, sharply lower than the Reserve Bank of India's target of 6% while industrial output will continue to remain weak, paving the way for a repo rate cut in September, Bank of America Merrill Lynch said Friday.
A better than expected monsoon, lower oil prices have resulted in easing consumer, wholesale and agricultural inflation with the central bank likely to cut its lending rate by 25 basis points next month, Bank of America said.
India's retail inflation quickened to 5.4% in June forcing the Reserve Bank to pause its rate cut cycle.
Agflation is expected to be well under control while wholesale deflation is expected to further worsen to 2.9%, Bank of America estimates.
India's industrial output is expected to expand 3.5% in June higher than 2.7% in May largely on base effects underscoring a slow recovery, the bank estimates.
BoFAML believes that further rate cuts by the Reserve Bank of India is contingent upon lending rate cut by banks, which will also aid in boosting the anemic growth in industrial output, especially since credit growth has slipped below 10% owing to slower expansion in reserve money.
"We think time is running out for further lending rate cuts this fiscal," said Indranil Sen Gupta. "With capital flows drying up it is difficult for the RBI to pump in sufficient reserve money to soften lending rates."
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