India monsoon tracker: It’s pouring out there

The southwest monsoon rains increased dramatically over the past seven days, with more regions showing above normal rainfall conditions. Cumulatively, rainfall conditions have moved into a considerable surplus: total rainfall between 1 June and 25 June is 28% above normal. 

The geographic distribution now shows that 30 out of 36 regions show excess or normal rainfall conditions, up from 23 last week, and another 2 regions report close to normal conditions. No regions report scanty rainfall (60% below normal), down from 4 in the previous week and 18 from first week. June accounts for ~18% of total seasonal rainfall, while July-August remain the key months.

Despite the huge surplus, the Indian Meteorological Department (IMD) maintained its forecast of rainfall for the season being 88% of the long-period average and  said its new projections will be issued in July. In the meantime, the sowing activity is improving, and the government continues to focus on inflation management by placing import orders for wheat, pulses and oilseeds. These food commodities have seen price increases recently, according to high-frequency data.

The Reserve Bank of India (RBI) in its recent statement noted that monsoon-related risks dominate its concerns around inflation, although the governor recently noted that the progress of monsoons has been "quite strong". Although India's headline inflation remains manageable, risks around food inflation persist, and in that context, the lack of an increase in MSPs in mid-June for the summer crops is a welcome sign. 

Barclays notes:

• We forecast FY 15-16 average CPI inflation of 5% (H1 FY 15-16: 4.5%, H2 FY 15-16: 5.5%. 
  
  
• We expect monetary policy in the coming months to continue to be data-dependent. 
  
  
• Despite the RBI's recent cautious guidance, RBI, the risk of another cut in H2 FY 15 remains, in our view.