Will IIP whammy be blessing in disguise, lead RBI to pause?

Moneycontrol Bureau

The Reserve Bank of India has time and again surprised the street on various counts. And this time too, on September 16, none know what may be in store. With dismal set of growth numbers from the industry in the month of July and inflation being a constant battle to fight, the course that the RBI would take is unknown. India's industrial output in July saw a steep fall to 3.3% as against an 8.8% growth in the same month last year. But this doesn't come as a surprise to IDBI Bank's chief financial officer P Sitaram. "On the face of it the number is disappointing, but overall it doesn't reflect any deep change in the trend. Thus there are chances of the Reserve Bank raising rates on September 16, but the tone will be more balanced," he said. However, other experts believe otherwise. According to them though poor IIP numbers is a matter of concern for the RBI, but inflation continues to be bigger worry. And thus, all eyes are going to be on September 14 inflation numbers. "Going forward, agriculture will do better than what one had expected at the beginning of the year. The monsoon has been extremely good whereas the industrial production maybe lower than what was expected. The major concern of the Reserve Bank of India at the moment will be to tame inflation because that still remains well above the comfort level; it has remained over 9% since January and this is very uncomfortable," C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister said. Is a pause likely? No way!!! Talking about the probability of the RBI pausing if inflation comes in around 9-9.6% (as expected) on September 14, Abheek Baruah chief economist at HDFC Bank said, that is not going to happen. "RBI has started a process, which is still incomplete. And, given the fact that they have so often in the past been accused of falling behind the curve, I think they would complete the process this time. There is at least one more rate hike underway," he pointed out. Baruah expects a 25 bps or perhaps a 50 bps hike till October, but that he said would happen in two stages and not at one go. Chikita Kukreja chikita.kukreja@network18online.com