The south-west monsoon rains continued their poor run. Cumulative rainfall between 1 June and 19 July was 8% below normal, worsening from the 4% shortfall last week. The drop came even as rainfall improved somewhat week over week, but the overall deficit still increased. However, the geographic distribution has not changed much, with 26 out of 36 regions reporting normal rainfall conditions. Also, water reserves improved in 91 major reservoirs, with levels as of 9 July 131% of levels seen last year.
July-August remain the key months for monsoons, and next four weeks account for ~30% of total seasonal rainfall. The Indian Meteorological Department (IMD) forecasts rainfall to be below normal in July and has maintained its seasonal forecast that rains are likely to be 88% of the long-period average. A private agency, Skymet, had forecasts rainfall to be normal in July, but recently indicated that its forecast may not be met. Overall sowing activity for food remains robust and was up ~61% relative to 2014 as of 10 July, with strong increases seen in pulses (~43.6%) and oilseeds (~355%). The government has also made inflation management a top priority, and we are starting to see the upward momentum in food inflation starting to slow down.
In its recent statement, the Reserve Bank of India (RBI) 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. In that context, the significant improvement in crop sowing activity, along with subdued increase in MSPs in mid-June for the summer crops, is a welcome sign.
"Despite the upside surprise in June inflation print, we forecast FY 15-16 average CPI inflation to be 5% (H1 FY 15-16: 4.5%, H2 FY 15-16: 5.5%). We expect monetary policy in the coming months to remain data dependent. Despite the RBI's recent cautious guidance, the risk of another cut in H2 FY 15 remains, in our view. 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," says Barclays.
July-August remain the key months for monsoons, and next four weeks account for ~30% of total seasonal rainfall. The Indian Meteorological Department (IMD) forecasts rainfall to be below normal in July and has maintained its seasonal forecast that rains are likely to be 88% of the long-period average. A private agency, Skymet, had forecasts rainfall to be normal in July, but recently indicated that its forecast may not be met. Overall sowing activity for food remains robust and was up ~61% relative to 2014 as of 10 July, with strong increases seen in pulses (~43.6%) and oilseeds (~355%). The government has also made inflation management a top priority, and we are starting to see the upward momentum in food inflation starting to slow down.
In its recent statement, the Reserve Bank of India (RBI) 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. In that context, the significant improvement in crop sowing activity, along with subdued increase in MSPs in mid-June for the summer crops, is a welcome sign.
"Despite the upside surprise in June inflation print, we forecast FY 15-16 average CPI inflation to be 5% (H1 FY 15-16: 4.5%, H2 FY 15-16: 5.5%). We expect monetary policy in the coming months to remain data dependent. Despite the RBI's recent cautious guidance, the risk of another cut in H2 FY 15 remains, in our view. 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," says Barclays.
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Source : FX-Primus
Source : FX-Primus
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