A sharp fall in global crude oil prices over the last few days, predictions of a better monsoon and limited impact from the goods and services tax on inflation may push the Reserve Bank of India (RBI) to soften its stance on interest rates, possibly opening the door to another rate cut later this year. In its monetary policy review in February, RBI had shifted its stance to neutral from accommodative, substantially reducing the chances of a rate cut.  It reiterated this stance in April, citing risks ranging from an uncertain monsoon due to rising probability of El Nino, higher allowances to government employees after the Seventh Pay Commission, the one-off effects due to the implementation of GST and risks due to higher global commodity prices. The central bank expects inflation to average around 5 per cent in the second half of the current fiscal, higher than its medium term target of 4 per cent. Current expectations are that these risks to inflation have dipped. For example, earlier this month, the India Meteorological Department (IMD) predicted that the country may get more than adequate rainfall as the chances of an El Nino condition, which is linked to droughts in India, have fallen substantially. Economists say the chances of RBI softening its stance are higher.

(Economic Times)