India monsoon tracker forecasts a good week - headline inflation remains manageable in India

The southwest monsoons showed dramatic progress in the last week, with quantity and geographic distribution improvements with 23 out of 36 regions showing excess or normal rainfall conditions, up from 18 last week. 

Cumulatively, rainfall conditions have moved into a small surplus, with the total rainfall between 1 June and 18 June 10% above normal. The regions showing scanty rainfall (60% below normal) has shrunk significantly, dropping to 4 from 10. While these are early trends, the fears around sub par monsoons have eased.

The focus on controlling inflation persists, and in its announcement of minimum support prices on 17 June, the government kept the price increases low for cereals, and only increased it substantially for pulses, in order to encourage production and sowing, perhaps in response to fears of a poor monsoon season. The new MSPs will come into effect from October 2015.

The Reserve Bank of India (RBI) in its recent statement noted that monsoon-related risks dominate its concerns around inflation. 

While headline inflation remains manageable in India, risks around food inflation persist, and in that context, the lack of increase in MSPs for the summer crops is a welcome sign. 

Standard Chartered forecasts FY 15-16 average CPI inflation of 5% (H1 FY 15-16: 4.5%, H2 FY 15-16: 5.5%; see India: A lower inflation trajectory in 2015, 13 March 2015). Monetary policy in the coming months is expected to continue to be data-dependent. 

Despite the cautious guidance recently from RBI, the risk of another cut in H2 FY15 likely. However, such action will remain contingent on greater clarity on a number of factors, including trends in commodity prices, the monsoon outcome, the likely 2016 inflation trajectory and the impact of a Fed rate hike, potentially in H2 15