Risks of further rate cuts from Reserve Bank of India in H2 15 persists

The uptick in India's retail inflation in June is unlikely to be a major concern for the RBI. India's CPI inflation surprised to the upside at 5.4% y/y in June, up from 5.0% in May and reflecting an increase in the prices of vegetables, pulses and edible oils.

"Monetary policy in the coming months is expected to remain data dependent. Despite the RBI's recent cautious guidance, we still see risks of another cut in H2 15", says Barclays. 

Also, prices of petroleum products were hiked in late May-early June, which added to inflation. Excluding food prices (5.7% y/y), underlying inflation remains manageable, in our view. Indeed, despite higher service tax in June, core CPI was manageable at 4.6% y/y, up modestly from 4.4% in May.

"However, a potential cut 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 potential Fed rate hike, possibly in H2 15", added Barclays.