The Reserve Bank of India is likely to cut benchmark rate by 25 basis points in its policy meet on August 4 provided rains are normal, a Bank of America Merrill lynch report says. “We now expect RBI Governor Raghuram Rajan to cut policy rate 25 bps on August 4 if rains remain normal,” Indranil Sengupta, chief economist India at BofA-Ml, said in a research note.
As per the global financial services firm, 'agflation' is in check and the June CPI inflation is likely to stay soft at 5.2 per cent. Moreover, early rains have supported cropping and improved river water levels. Besides, buffer rice stock will help contain inflation in the case of a drought. The report noted that with the Fed sounding relatively ‘dovish’, rains hold the key to a 25 bps RBI rate cut on August 4, especially if Greece issue is sorted out and the markets do not react negatively to the Fed statement on July 29.