According to the global financial services major, the Consumer Price Index based inflation is peaking off and is expected to be around 7.5-8 per cent in September.
"We expect the RBI to begin to cut rates starting February with stable oil prices and INR providing comfort that Consumer Price Index inflation will come off to 6 per cent by early 2016," BofA-ML said.
The Wholesale Price Index based inflation fell to 5-month low of 5.19 per cent in July on account of decline in vegetable prices, while the CPI-based retail rose marginally to 7.96 per cent in July, from 7.46 per cent in June.
The BofA-ML report further noted that late rains should water a good winter rabi crop to douse agri-inflation.
Moreover rising investment is beginning to step up agriculture, especially horticulture
'Insiders' vs 'outsiders' at RBI
RBI keeps rates unchanged as inflation remains a concern
RBI will not hold rates high, to cut SLR further: Rajan
Sharp rate cuts by RBI possible from 2015
D-Street cheers GDP growth but cautions tough road ahead