WPI inflation surprised positively, rising lower than expected at ~7.3% YoY in June (against our expectation of ~7.7%) primarily on account of decline in imported inflation and also modest easing in agri-inflation. Demand-side inflation did normalise from a very low level, but still remained well below historical average. Going ahead, while demand-led inflation is expected to remain contained given that businesses are losing pricing power, weak monsoons point to risk of agri-inflation.
As regards the monetary policy, we reiterate that contained demand pressures, below-par economic activity, sharply weakening global economy and associated softening in global commodities (despite INR depreciation) provide room for additional monetary easing. Accordingly, we expect RBI to deliver 25bps repo rate cut in the forthcoming policy meeting on July 31.
Regards,
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