In an interview with CNBC-TV18, Indranil Pan, chief economist, Kotak Mahindra Bank, outlined his view on the index of industrial production (to be released today) and consumer price index (to come out on April 13) data.
Pan said there was a definite sense industrial output was picking up while inflation may trend lower for the next few months due to base effect.
Below is the transcript of the interview on CNBC-TV18.
Anuj: What is your IIP number and what kind of trajectory do you expect from now on?
A: We are looking at 3 percent on the index of industrial production (IIP) but having said that I think the relative importance of the IIP is lower at this point in time because that is not something that we look at immediately to factor in to my gross domestic product (GDP) numbers. But overall I would say the sense that we get is that the atmosphere in terms of the overall industrial numbers is relatively stabilised.
We have already reached the bottom. With some amount and some degree of easiness on the infrastructure side or projects have also been on the higher side, the stalled projects are getting cleared, we can relatively get better numbers as we go forward.
Latha: What about the consumer price index (CPI) number itself, what are you looking forward in the March CPI?
A: CPI we are looking at about 5.1 to 5.2 percent but the bigger implication of course would be the oil prices which had gone up in the previous month for which we would be looking at the data. So that would have its implication on the transport and communication segment of the headline CPI number.
On the other side, we have had relatively truant rains, for which we have not seen any major uptick in terms of the vegetable prices yet and we are hearing some crop damages on the wheat side but we are again not seen any significant uptick on the prices of most of the cereals.
So the implication may not be very severe out of the adverse rain conditions over the last month but we will again have to watch the data which the RBI also very specifically mentioned in its monetary policy.
Latha: We were 5.4 percent in February, 5.1 percent you are saying in March, so we keep going down till we get to 4 percent in August, is that also your bottom?
A: Our trajectory also is looking at somewhere around 4 percent in July/August but after that with the base effect having weaned out, we definitely expect some amount of higher inflation. Also, if I am looking at a relatively better growth overall and we think that the overall commodity cycle has seen a floor, we should not see any sort of significant deflationary or disinflationary trend in the Indian economy over the full year. So that is the background in terms of the belief of why the headline CPI would possibly end closer to 5.6-5.7 percent by end March.
Latha: So in your book also, it is one more rate cut at best?
A: Yes, it is and the reason is even with understanding that we are likely to move out of the bottom somewhere around July and August, the RBI would probably want to do the rate cut in June and not sort of delay it into the Fed rate cycle because once the Fed starts tightening, we don’t know what implication it might have for the overall global financial markets and especially for emerging markets. So whatever the RBI would want to do in terms of the rate action in this cycle, they should be getting over as soon as possible.
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