Dismal IIP: What makes experts not so 'surprised'?

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Moneycontrol Bureau

Despite a very sharp fall in December industrial output, economists do not seem to be too surprised. Industrial output in December has slowed down to 1.8% versus 5.9% in November .

Though not disappointed, Samiran Chakrabarty, Head of Research, Standard Chartered Bank feels unfortunately this number is what goes into GDP calculations, hence it might not be revised upwards the way some people were anticipating.

Sajjid Chinoy, Asia Economics, JPMorgan also feels that it is not as bad as it as 1.8% number basically implies a month on month seasonally adjusted decline of 2%. "Now that may seem bad in a particular month but it's coming off in a month which IIP grew at 10% the last month (MoM) seasonally adjusted. So it is a moderation but not as bad as it looks," Chinoy elaborates.

Infact, Chinoy is 'pleasantly surprised' at the buoyancy shown in consumer goods as there was a concern t with rates being where they are. "More interesting is consumer non-durables which have been declining for the first 10 months of the year have rebounded very smartly in November. Now in December again indicates that consumption for now is holding up," he adds.

RBI rate cut?

IIP slowdown won't worry RBI as Chakrabarty says that the central bank will be more closely watching the inflation number particularly the core inflation number. "If that shows a moderating trend then probably RBI will have some room to cut rates but otherwise just on the basis of slowdown going in for a rate cut even if it happens, it's going to be a very temporary affair," he explains.

The RBI made it very clear in the last policy review that any reduction in rates would be contingent on credible fiscal consolidation which is why Chinoy feels that RBI will cut only cash reserve ration in the next credit policy review.

This is because liquidity is going to be very tight again in the coming weeks and any decision to cut rates will be postponed at least till April.

Nasrin Sultana

nasrin.sultana@network18online.com