The Reserve Bank is likely to maintain a status quo on rates in its third bi-monthly policy meet on August 4, taking into account 'poor rains' and will go for a 50 basis points rate cut in early 2016, a Bank of America Merrill Lynch report said on Monday.
The global financial services major said it is important that the Western and Southern India that grows oilseeds, pulses and raw cotton gets monsoon rains as this region is slipping into a drought even as overall rains have improved.
"We see cropping at risk if rains do not revive in the next two weeks," BofA-Ml said in a research note adding that 'poor rains pose a temporary inflation risk'.
BofA-ML noted that the Consumer Price Index-based retail inflation will fundamentally remain on the RBI's under-6 per cent target and the Wholesale Price Index-based inflation may persist in deflation till October.
"We continue to expect the RBI to pause on Tuesday, on poor rains and cut 50 basis points in early 2016.
"However, we expect Governor Raghuram Rajan to strike a dovish note to keep the door open for further rate cuts if inflation continues to be in control," the report added.