Thanks to El Nino! RBI might not go for more rate cuts

The Reserve Bank of India (RBI) might not go for more rate cuts this year. An HSBC report has suggested that weak rainfall, resulting from El Nino, likely to have a substantial impact on food inflation and could directly impact rural household consumption.

HSBC's Chief India Economist Pranjul Bhandari expects no further easing this year and believes any more rate cuts could hinge on structural reforms, including food infrastructure and agricultural policy.

As per a PTI report, the global financial services major has said that El Nino risks cannot be underestimated, and going by the updates from across the world, El Nino conditions are likely to last longer and intensify in the second half of 2015.

The HSBC report further said the magnitude of the impact would depend on how the government carries out its "food management" processes.

In case fear over monsoon comes true, the central bank has indicated that the monetary policy would hinge on the government's response to it.

The RBI has said, "A conservative strategy would be to wait, especially for more certainty, on both the monsoon out turn as well as the effects of government responses if it turns out to be weak."

Meanwhile, the central bank has raised its inflation forecast to 6% by January 2016 - slightly higher than the 5.8% forecast in April.

In the policy review on June 2, the RBI has cut benchmark rate by 0.25% for the third time this year to spur investment and growth, but hinted that there may not be any more reduction in the near term.

(Image: Indiatimes)