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Bank of America Merrill Lynch’s Economist, Indranil Sen Gupta, has warned investors about rising El Nino risks, after the India Meteorological Department forecast a below-normal monsoon, at 95 per cent of long-run average for the June-September south-west monsoon, with 60 per cent chance of an El Nino.
In a report, he said that the Australian weather bureau also sees a strong possibility of El Nino by July, on the anvil of the key sowing months of July-August. If the rains are normal, growth should climb to 5.4 per cent from 4.7 per cent last year.
BoAML estimates that poor rains will hurt by 50-75 basis points. With a normal monsoon, CPI inflation will likely soften to 7 per cent levels by March 2015 opening the possibility of RBI rate cuts by December. An El Nino will stick it up at 8-10 per cent, pushing RBI rate cuts to 2015.
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