Two sets of data over the next seven days — industrial output growth for April and consolidated monthly inflation for May — would largely determine the Reserve Bank of India’s (RBI) next move on interest rate hikes, but analysts expect any reduction in lending rates to be only moderate.
India’s wholesale inflation rate was a worrisome 7.23% in April from 6.89% in March.
Besides, a falling rupee, which hit an all-time low of 56 to a dollar, will push up prices of most imported goods, including crude oil, further fanning inflation.
India’s factory output contracted by (-)3.5% in March, the lowest in five months, as corporations held back planned capacity expansions, affecting job and investment prospects.
Industry has been racheting up its demand for a cut in interest rates.
A snap poll of CEOs by industry body CII found showed that a majority of corporate leaders wanted an immediate cut in the repo rate, the rate at which RBI lends to banks, by 1 percentage point. The RBI had slashed the repo rate by 0.50 percentage points to 8% in April.