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Nomura warns weak monsoon could spike inflation and hurt rural demand
- •Nomura reports that the southwest monsoon was 13% below normal, marking the weakest performance since 2015.
- •Low reservoir levels at 72% capacity threaten upcoming rabi crop production, particularly wheat and pulses.
- •Food and beverage inflation is projected to surge to 8.5-9% in October and November.
- •Rural demand shows early signs of slowing down with weakened growth in two-wheeler and tractor sales.
Key Questions Answered
Nomura reported that southwest monsoon rainfall from June to September was about 13% below normal, marking the worst performance since 2015. The brokerage warned that low water levels in reservoirs and weak rainfall could increase food inflation and pressure rural demand in the second half of fiscal year 2027.
As of October 2, total kharif crop sowing was 1% lower than the previous year, with paddy down 3.5% but pulses up 2.1%. Meanwhile, reservoir water levels stood at 72% of total capacity by October 1, significantly lower than the 89% recorded a year ago.
Nomura estimates that food and beverage inflation could surge from 5.7% in August to reach 8.5-9% in October and November. Consequently, the brokerage projected that the Reserve Bank of India may implement 25-basis-point policy rate hikes in October and December.
