Bank of America Merrill Lynch (BofA-ML) advises investors to focus on the coming monsoon as it thinks that holds the key to CPI inflation.

As it is, hailstorms have driven up food prices and pushed March CPI up to 8.3% from 8% last month. A 5% swing in food prices impacts CPI inflation by 250bp. Core CPI inflation, despite a marginal fall, remains high at 7.8% as housing price inflation is over-estimated at 10%. March WPI inflation has also rebounded to 5.7% from 4.7% last month, it said.

"Looking ahead, we await the Indian Meteorological Department’s (IMD) first monsoon forecast in mid-April at a time of rising El Nino risks," BofA-ML added.

"On balance, we expect RBI Governor Raghuram Rajan to hold rates on June 1," BofA-ML opined.

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