Cumulative rains since the monsoon season started on June 1 were 30% below their long-term average on June 24. Heavy rainfall over the last few weeks has erased that deficit and cumulative rains now amount to a surplus of 2% as of July 12.

Heavy rains have also resulted in flash floods in northern India and damaged some crops. Overall, we believe rains would be beneficial for the summer crop, but excess rains can also hurt farm output in areas that have been flooded.

It is still early to say how the regional distribution of the rains pans out over the entire monsoon season, which lasts through September. The heightened risk of El Nino this year threatens to weaken the rain clouds over the South Asian subcontinent.

According to our estimates, the damage to farm output from El Nino could boost headline inflation by as much as 0.5 percentage point.

Eoin Treacy's view

It’s hot in the desert during summer, India gets excessive rain during the monsoon and it rains a lot in Ireland. Bloomberg’s typo today was funny and might be described as taking climate alarmism too far. (The lava flows are currently in Iceland).

For India a normal monsoon is generally considered good news. There will always be some untoward damage from excessive rains but reduced rainfall would be a much bigger issue. India still has a large number of people working on farms and with such a large population the price of food tends to play an important role in driving inflationary trends.

The RBI has been quite clear in its determination to quash inflationary pressures so we can expect positive real rates to persist. At present the repo rate is 6.5% while CPI surprised on the upside to 4.81% today, from 4.25%. Since the range for CPI has been between 4% and 8% over the last three years, there is scope for additional rate hikes if inflation continues to rebound.

The Rupee continues to be supported at just below the INR83 level which suggests the RBI is actively targeting a firmer currency to mitigate some of the inflationary pressures.


The Bombay Banks Index is easing back to test the previous highs around the psychological 50,000 level. Ideally that level will hold since the banking sector has historically been a reliable lead indicator for the performance of the wider market.

The Aberdeen New India Investment Trust pulled back rather sharply over the last two weeks and is now back testing the sequence of higher reaction lows and the region of the trend mean. This would be an ideal time for demand to return and confirm the sustainability of the recovery.