India's monsoon-related risks dominate concerns around inflation

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 the monsoon this year has been good.

Although India's headline inflation remains manageable, risks around food inflation persist. In that context, we think the lack of an increase in MSPs in mid-June for the summer crops is a welcome sign. 

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

However, such potential 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 potential Fed rate hike, possibly in H2 15, says Barclays.