Controlled inflation, strong IIP raise hopes of rate cut by RBI

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January 13, 2015: A pick-up in manufacturing, mining and power sector activities pushed industrial production to a five-month high of 3.8 per cent in November, while retail inflation rose to 5 per cent in December, higher than 4.8 per cent in November, raising hopes for an interest cut by the Reserve Bank of India (RBI) in its forthcoming policy review on February 3.

According to the index of industrial production (IIP) data released by the ministry of statistics and programme implementation, manufacturing production — which comprises more than 75 per cent of the index — grew 3 per cent in November against a contraction of 7.6 per cent in October. Similarly, mining output also saw a growth of 3.4 per cent during the month, though at a slower pace compared with 5.2 per cent in October. Electricity generation grew by 10 per cent during the period compared with 13.3 per cent in the previous months.

Consumer price index-based (CPI) inflation, meanwhile, posted a slightly higher growth on account of high cost of food products including fruits and protein-rich items. While in November, retail inflation posted a growth of 4.38 per cent — lowest since the government started computing the new series of data in January 2012 — in December 2013, it stood at 9.87 per cent.

India Inc made a strong pitch for a cut in interest rates. However, experts said that they should be viewed in light of the base effect, encouraged by the twin data.

“I don’t think RBI will do away with the high policy rates. Global developments like Greek elections and the reaction on rupee has to be factored in. So we can say that the probability of a rate cut in February is relatively higher now than before,” Indranil Pan, chief economist, Kotak Mahindra Bank, said.

Economists added that the probability of a cut in interest rate is much higher after the government has presented the Budget 2015-16 next month.

Courtesy: Indian Express