Weak IIP reinforces need for interest rate cut: CII

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The August IIP figures are a result of industrial slowdown coupled with a high base effect of the Year-on-Year since the figure for August last year was a high 10.9%, said CII in a Press Statement issued here today. However, even taking these into account, the growth of 1.3% is exceptionally low said the CII release.

 

CII members have been fairly upbeat about growth prospects although the current global turmoil and the tight monetary situation have been viewed as threats. Growth has decelerated the most in the capital goods sector which grew at 2.3% compared to 30.8% a year ago, indicating slower demand for investment goods. This is a worrying sign, said CII, especially as growth in the capital goods sector was quite encouraging in the previous month at over 20%. Capital Goods sector is suffering owing to the fact that credit has dried up for investment projects including construction and this has impacted orders for capital goods, said the CII release

 

In view of the slow down in growth, CII said that it is time for the RBI to change its monetary policy stance. A hawkish stance is no longer appropriate in the current situation where growth is clearly being sacrificed. Inflation is likely to decline to single digits in a few months as global commodity prices have started softening. Central banks across the world have started cutting interest rates in view of the crisis in global financial markets. This would provide an opportunity for the RBI to change its stance and start cutting interest rates. CII has welcome the RBI's move to reduce CRR by 150 bps but today's weak IIP data shows that the RBI should go further and reduce interest rates, the release said.

Sourced From: Confederation of Indian Industry