The sharp growth in India’s manufacturing activity and multi-month low inflation rates have rekindled hopes of an economic recovery. So, a day ahead of the Reserve Bank of India’s (RBI’s) monetary policy review, the question that is uppermost in the minds of many is: Will the central bank announce an interest rate cut on Tuesday and trigger lower equated monthly installments (EMIs)?
Experts said RBI governor Raghuram Rajan is likely to maintain a status quo on lending rates and wait for more indications to conclude that price growth is slowing down.
“The RBI likely to stay cautious and keep policy (rates) on hold. We continue to expect a more balanced monetary policy stance in the later part of 2014,” Barclays said in a research report.
Wholesale inflation grew 5.43% in June, while retail inflation at 7.3% hit its lowest in 30-months.
“The decline in inflation recorded in June can be viewed as being temporary,” credit rating and research firm CARE Ratings said in a report.
“The deficient monsoons could potentially push up food prices in the ensuing month. Added to this is the risk associated with a rise in fuel prices with the ongoing political tensions in the oil producing regions of West Asia. The hoped for easing of interest rates by the RBI is some time away. ” it said.
Amid incipient recovery signs, business leaders have been ratcheting up their demand for a cut in borrowing rates to aid an industrial turnaround. Analysts and economists will also be looking for forward looking cues in the accompanying policy statement, the RBI’s prognosis about the broader economy’s health, and it’s views about external and internal risk factors
Production activity in Indian factories jumped to 17-month high in July driven by a flood of new orders, data from a monthly survey showed, rekindling hopes of rebound in the Indian economy .
The HSBC Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, grew to 53 in July this year from 51.5 in June indicating strong improvement in business conditions. PMI is a metric to measure industrial activity capturing output to sales. A reading above 50 indicates growth in factory output.
“The speed of the recovery has also lifted price pressures, with input prices rising steeply. This means that the RBI may not cheer as loudly as the rest of us,” said Frederic Neumann, Co-Head of Asian Economic Research at HSBC in a recently released report.