Despite IIP surprise, RBI to cut rates next Tue: Foreign analysts | business | Hindustan Times
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Despite IIP surprise, RBI to cut rates next Tue: Foreign analysts

business Updated: Mar 12, 2013 21:54 IST
rbi rate cut

Analysts at leading foreign brokerages like Credit Suisse and Barclays on Tuesday said the marginal uptick in IIP number and a spike in retail inflation would not deter the RBI from cutting lending rates by 25 basis points at its March 19 policy review.

Credit Suisse director Robert Prior-Wandesforde in a note said he still expects the monetary authority to slash the repo or short-term lending rate next Tuesday.

"We doubt that either of today's data releases (IIP and retail inflation) will prevent the RBI from cutting the repo (and cash reserve ratio) by another 25 bps March 19, while we are also looking for a 25 bps reduction on May 3," Prior-Wandesforde said.

Explaining the rationale for this optimism, he said the disappointing Q3 GDP data of just 4.5%, and the fact that finance minister P Chidambaram has stuck to his budgetary commitments are likely to carry more weight in the context of a WPI rate, which is trending lower.

While the January industrial production rose 2.4% mainly due to perk up in manufacturing output and enhanced power generation, against 1% a year ago, the retail inflation rose to 10.91% in February from 10.79% in January, dampening markets, which shed 0.41% or 81 points today.

For the April-January period of this fiscal, the IIP print stands at a poor 1%, down from 3.4% a year ago.

However, the RBI mostly bases it inflation reading on the wholesale price numbers, which have been trending down for the past many months now. The latest reading stood at 6.62% in January. The February readings will be out on Thursday.

Joining him, his counterpart at Barclays India said he too expects a 25 bps cut in the repo rate on Tuesday.

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