Industrial output is likely to improve hereon and the RBI could cut benchmark interest rates at its February policy review, said economists participating in a discussion on Index of Industrial Production (IIP) and inflation trends, on CNBC-TV18.
According to Samiran Chakraborty of Standard Chartered, improvement in the infrastructure sector, pick up in exports and increase in auto production are largely the drivers for the strong IIP reading in November.
“If you look at the index of IIP, the November index is very similar to the April index, which is more or less veering to the pattern we have seen in the last few years on the index itself. The maximum improvement should start reflecting from now in the index itself,” he told CNBC-TV18.
Commenting on the downtrend in the consumer durables sector, Sowmya Kanti Ghosh,chief economic advisor of SBI said: “One disturbing trend I have been noticing is that if you look at the credit data, which has been discouraging so far this year, there has been a significant traction in the personal loan segment, of which the credit card outstanding has been increasing at a very significant pace. This indicates that consumer sentiment is a bit negative and it may take a couple of more months for the mood to improve.”
Ghosh shared Chakraborty’s view that things were likely to get better on the industrial output front hereon, as December and March are seasonally strong months from an industrial output perspective.
On the possibility of a rate cut by the RBI in the near future, Siddhartha Sanyal, chief India ecnomist at Barclays said: “With each passing day, we are coming that much closer to the rate cut cycle. We do expect rate cuts in the coming policy itself; we see a 50-75 basis point cut in this cycle pretty much frontloaded in 2015 very likely.”
Chakraborty said purely from an inflation argument, a rate cut was likely in RBI’s February policy itself. However, among the RBI’s pre-conditions for a rate cut, the fiscal deficit picture looked a bit iffy, he said.
“I am not worried about whether the fiscal deficit target for this year will be met, I am more concerned about how the Budget for FY16 will look like. There are some talks about some targeted public spending programmes to be implemented through the Budget even at the cost of fiscal consolidation not being done,” he told CNBC-TV18, adding he was not sure how the RBI would view something like that.
He said that the declines in veggie and cereals have been lower than expected, but it is too too early to say if structural bottlenecks have been resolved.
“Low food prices will be the key element in keeping inflation within RBI's target range for much of 2015,” Chakraborty said.
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