From Fields to Finance: How the Monsoon Is Shaping RBI's Policy Path

As the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) concludes its crucial three-day meeting on Thursday, a strong consensus among economists points to a 25 basis point (bps) cut in the benchmark repo rate, lowering it to 5.75%.

- R SURYAMURTHY

NEW DELHI: This anticipated move, which would mark the third consecutive rate cut this year, underscores the RBI's evolving accommodative stance, significantly influenced by a robust and early monsoon, and its potential to tame inflationary pressures.

The timely and above-average arrival of the monsoon across India is emerging as a critical factor in the MPC's deliberations. Traditionally, monsoon performance has a direct bearing on food inflation, a highly volatile component of India's CPI. This year's optimistic forecast of 105% of the Long Period Average (LPA) for seasonal rainfall, with a margin of +/-5%, is providing significant comfort to policymakers.

"Indian agriculture has historically been subject to the vagaries of the monsoon, often referred to as 'a gamble in monsoon,' a noted economist said. While agriculture's share of GDP has decreased, its impact on employment (approximately 54% of the workforce) and, crucially, food prices, remains paramount.