Two sets of data to be released this week - industrial output growth for August and consolidated monthly inflation for September - would largely determine the Reserve Bank of India's (RBI's) next move on interest rate hikes. Policy makers are facing a harsh dilemma: a slew of fiscal and monetary measures to cure inflation has not tamed prices but cast side effects on growth.The government will announce the factory output growth figures for August on Wednesday and release wholesale prices based inflation data for September two days later.
With India's inflation rate racing towards worrisome double-digit levels, all eyes are on the RBI, on whether it may announce a pause in its interest rates hike cycle later this month when it presents the quarterly monetary policy review on October 25.
The wholesale price index (WPI)-based inflation stood at 9.78% in August, the highest in 13 months, fuelled by costlier food, fuel and manufactured products.
"Amidst mounting global uncertainties, it is unlikely for the RBI to hike repo rates at this juncture," said a recent research report by BNP Paribas.
India's factory output growth in July grew by 3.3%, the slowest in 21 months, latest data showed on Monday, mirroring signs of an imminent industrial slowdown as rising input costs and costlier borrowing squeeze corporate profitability, forcing them to defer investments.
The RBI has raised the repo rate by 12 times in the past 18 months to cool prices.
A higher repo raises banks' borrowing costs, which in turn would raise interest rate on final home, auto and corporate loans.