Mumbai: American brokerage Bank of America-Merrill Lynch (BofA-ML) on Friday said the "deflation" on the wholesale price index is likely to continue till October.
"We see wholesale price deflation persisting for another four months till October if the dated Brent ends 2015-16 at $62 a barrel," BofA-ML said in a research note.
Wholesale Price Index-based inflation was at negative 2.4 per cent in June, which was the eighth consecutive month of decline.
While Consumer Price Index-based inflation will indubitably remain the official inflation target, it expected the Reserve Bank of India (RBI) to absorb the key message of weakening imported inflation in its monetary policy formulation going forward.
"After all, imported inflation is likely to remain in check with commodity prices reined in by the concerns about the US Fed tightening, the Greek crisis and Chinese slowdown and also due to stability in the rupee with the RBI recouping foreign exchange reserves," it said.
The note said RBI Governor Raghuram Rajan is likely to cut repo rate by 50 basis points in early 2016, with CPI inflation well on track to be under the RBI's comfort zone of under 6 per cent in January 2016.
"If the monsoon rains rotate back next week, the RBI could also cut (rate) on August 4 if the Fed is none-too- hawkish on July 29," the brokerage said.
Retail inflation as measured by consumer price index accelerated to an eight-month high of 5.4 per cent in June from 5.01 per cent in May. It was 6.77 per cent in June 2014.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
