Sunday, Dec 21, 2014

El Nino may push retail inflation to 8-10%: Key facts

By: ENS Economic Bureau | New Delhi | Posted: April 26, 2014 10:20 am

The EFFECT of El Nino on the Indian monsoon will be clear by July, but poor rains could hurt growth by 50 to 75 basis points, according to Bank of America Merrill Lynch. If the rains are normal, growth should climb to 5.4% from 4.7% last year.
GROWTH: Poor rains can have three types of impact on growth: drought impacts the kharif harvest and pulls down growth by 25 bps; second round effects of the slowdown in agriculture or industrial recovery will be pushed back further if the RBI delays rate cuts.
INFLATION: If rains are normal, retail inflation may ease to 7-7.5 per cent by March 2015. If the El Nino impacts the kharif harvest, rising food prices would push up CPI inflation to 8-10 per cent. This would delay rate cuts by RBI to early 2015.
SILVER LINING: The only relief is that rivers are running relatively full . In particular, the Ganga, which waters the rice fields of the north and the east, is flowing at over two and a half times its 10-year average.

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