El Nino risks threaten the monsoon, RBI likely to be in pause mode: BofA-ML

Apr 21 2014, 20:54 IST
Comments 0
The RBI had increased the key policy repo rate three times since Raghuram Rajan took over as Governor in September. The RBI had increased the key policy repo rate three times since Raghuram Rajan took over as Governor in September.
SummaryThe Reserve Bank of India is likely to be in a "pause" mode till December, as rising El Nino risks threaten the monsoon, a Bank of America Merrill Lynch report said.

The Reserve Bank of India is likely to be in a "pause" mode till December, as rising El Nino risks threaten the monsoon, a Bank of America Merrill Lynch report said.

According to the global financial services major, inflation pressures are likely to remain as a possible El Nino could affect the monsoon, which in turn would push up food prices.

"On balance, we expect the RBI to pause till December, with rising El Nino risks threatening the monsoon," the report said, adding that a "5 per cent swing in food prices impacts CPI inflation by 250 basis points".

The RBI's target is to ease retail inflation, as measured by the Consumer Price Index, to 8 per cent by January 2015 and 6 per cent by January 2016.

Both retail and wholesale price inflation accelerated in March due to rising food prices. While wholesale inflation rose to a three-month high of 5.7 per cent, retail inflation inched up to 8.31 per cent, after softening for three straight months since December.

The RBI had increased the key policy repo rate three times since Raghuram Rajan took over as Governor in September.

El Nino refers to the warmer-than-average sea surface temperature in the central and eastern tropical Pacific Ocean. This condition occurs every 4-12 years and had last impacted India's monsoon in 2009, leading to the worst drought in almost four decades.

If El Nino occurs by summer, it will drive rain clouds away and impact the June-September monsoon. If it stretches to the fall, India will mercifully escape, it added.

Ads by Google

More from BANKING & FINANCE

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...