How India's early, abundant monsoon could cool prices, fuel exports and drive another interest rate cut in June
MUMBAI, May 30 — India's weather office has forecast an above-average monsoon season for the second straight year in 2025, with the annual rains arriving at their earliest in 16 years.
The rains have spread to nearly half the country ahead of schedule, after hitting the coast of the southernmost state of Kerala on Saturday, or eight days earlier than usual.
Why is the monsoon crucial?
The monsoon brings about 70 per cent of the annual rains in a nearly US$4-trillion economy, to which agriculture, employing more than half of a population of 1.4 billion, contributes about 16 per cent.
While the rains are vital for key crops such as rice, wheat, sugarcane, soybeans, and cotton, their influence affects the wider economy, fuelling overall growth while limiting food price inflation, and eventually, lending rates.
Bigger harvests could also ease export curbs on sugar, and allow greater exports of staples such as rice and onions. Conversely, drought requires food imports and export curbs.
Farmers earning more from larger crops tend to spend more on appliances and jewellery in the subsequent festival and wedding season, boosting consumption.
How are inflation and central bank policy affected?
Food makes up nearly half of India's consumer price index, closely watched by the central bank in deciding monetary policy. Rainfall above the average in 2024 helped rein in food prices, allowing the Reserve Bank of India (RBI) to cut lending rates.
This year's forecast of above-average monsoon rains will provide comfort to the RBI, which is likely to cut interest rates on June 6 for a third consecutive meeting and once more in August to speed growth.
What is the immediate impact of early arrival?
The early monsoons alleviated sweltering temperatures nationwide near the end of summer, when power utilities struggle to satisfy demand for more air-conditioning and irrigation of standing crops.
The sharp drop in temperatures cut electricity consumption, briefly pushing down prices to near zero on power exchanges.
Sales of cold drinks and ice creams also began tapering off nearly three weeks earlier than expected. The rain is replenishing reservoirs in southern and western India, allaying supply concerns at a time when water typically runs low.
Which crops will benefit?
With the monsoon arriving nearly two weeks early in some areas, farmers will bring forward the sowing of crops such as paddy, cotton, soybean, and pulses. All crops will benefit from above-average rain, but more particularly thirsty ones such as rice and sugarcane.
Crop yields depend not only on the volume of rainfall but also its spread during the four-month season. Excessive rainfall or prolonged dry spells could crimp yields. — Reuters
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