Monsoon has faltered after a promising start but inflation risks remain low and the CPI inflation is likely to average around 5.0-5.5% in the current financial year, says a Nomura report. According to the Japanese financial services major, inflation risks remain low largely owing to robust sowing progress on pulses and oilseeds, moderate rise in minimum support prices and low global prices. "From an inflation perspective, we believe risks remain low. While sowing data suggests some shortfall in coarse cereals production, the upside to CPI inflation should be limited," Nomura said in a research note yesterday.
"We expect FY16 CPI inflation to average about 5.0-5.5% year-on-year," it added. The report, however, cautioned that while inflation risks remain contained, the next two weeks will be "critical for gauging the impact of rains on agricultural growth this year". "Downside risks to our growth forecast stem from rains faltering over the next two weeks, particularly in the deficient states of Uttar Pradesh and Andhra Pradesh," it said.
In India, cumulative rainfall is currently 4.1% below long-period average with July rains 17.1% below normal. The sowing of rice -– the main kharif crop –- has not suffered because of good rains in the North West. However, coarse cereals production could suffer due to deficient rains and low reservoir levels in the West, it added.