LET’S PRAY TO THE RAIN GOD’S FOR THE NEXT RATE CUT

Termed as an inflation hawk by industry and analysts alike, our RBI governor would be smiling after IIP data release. Vindicated, it would be difficult to push him towards severing repo rates at least in the current fiscal. And there is not much reason for further rate cuts with IIP coming at 9.8% for month of October. Of course, next month IIP data would not have the low base effect but things are going to improve from here on. Sectors indicating economic activity, manufacturing, electricity and mining reported 10.6%, 9% and 4.7% rise respectively YOY. In addition to that even consumer durables and capital goods category went up by 42% and 16% respectively in the same period previous year.

Growth is not possible without mild inflation. And we do have this requisite ingredient with CPI at 5.4% (November 2015) well within the target band of RBI and WPI at lower negative rate of 2% which has risen for the third successive time this year. Indian industry activists would still believe that India is going through deflation as for them repo cut is the only panacea to lower their cost of funding. Thus the only thing they can do is praying to the rain gods because if they don’t oblige for a third time in a row, RBI would not be coerced to ease its policy in the midst of high food inflation.