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The WPI inflation is likely to average around 5.4% and CPI to average between 7.0-7.5% during FY 14-15, says a Barclays research report.
According to the global financial services major, though the IMD has recently downgraded its monsoon forecast, but the uncertainties around rainfall still remains.
The IMD recently downgraded its monsoon forecast, indicating that the deficit for FY14-15 is likely to be around 13%.
"While this is still an improvement from the current levels, it does raise the ongoing uncertainties around rainfall. That, coupled with geopolitical tensions, poses a risk to inflation," Barclays said in a research report, adding that "we expect WPI inflation to average 5.4% and CPI to average 7.0-7.5% during FY 14-15".
Monsoon rains are very crucial for the agriculture-driven Indian economy, as nearly 60% of agricultural area is still rain-fed and rains have implications for both inflation and growth.
WPI inflation declined to 5-month low of 5.19% in July on account of decline in vegetable prices. According to official figure, the Wholesale Price Index based inflation was at 5.43% in June, and 5.84% in July last year.
Meanwhile, retail inflation - based on Consumer Price Index - rose marginally to 7.96% in July, from 7.46% in June mainly due to higher prices of food items like vegetables, fruits, milk.
"As such, we think the monsoon rainfall and future trends in inflation will play a key role in influencing the central bank's actions," Barclays said.
The RBI had held its key rates in it August monetary policy review.
The RBI wants to maintain the number at 8% by January 2015, but is targeting to take it down further to 6% by January 2016.
