Two crucial sets of data this week — industrial output growth for October and consolidated monthly inflation for November — would largely determine the Reserve Bank of India’s (RBI) next move on interest rate hikes amid expectations that it would signal a pause in a 20-month-long rate increase cycle by keeping policy rates unchanged.
In the continuing tug-of-war between sliding growth and rising inflation, the RBI is widely expected to cut the cash reserve ratio (CRR) — the proportion of money the banks have to park with the central bank. However, it may also keep interest rates unchanged in its policy review on Friday. A lot would depend on data that comes in earlier.
The government is due to announce on Monday the factory output growth figures and release wholesale price-based inflation data for November two days later. “The RBI is unlikely to change policy rates in its forthcoming review” said DK Joshi, chief economist at credit rating firm Crisil.
India’s economy grew by 6.9% year-on-year during the July-September quarter while the government has slashed its full-year GDP growth forecast to 7.5% in the mid-year review tabled in Parliament on Friday.
Industrial output growth is expected to show an even poorer performance after slumping a two-year low of 1.9% in September. High inflation and interest rates have hurt investment as input costs and costlier borrowings squeeze corporate profitability, forcing firms to defer planned capacity expansions.
“There are concerns about investment intensions. Industry is not yet ready to invest as it expects the slowdown to continue because interest rates are high and demand for goods are showing significant signs of weakness,” said Harsh Pati Singhania, MD, JK Paper.
There will also be more focus on the accompanying policy comments of the RBI, which the stock markets and economists will scrutinise closely for RBI’s assessment of the current economic situation and any forward-looking cues.
India’s inflation rate in October accelerated to 9.73% driven by high manufactured products’ prices, but year-on-year food inflation dropped sharply to 6.6% in the last reported week (Nov 26) rekindling hopes that government and the RBI may finally be on the verge of winning protracted battle with prices.