Expect RBI to hold interest rate at existing level: CARE

Industry and Inflation Review by CARE Ratings Industrial production grew by 2.1% in the month of March ’15, lower than the 4.98% recorded in Feb’15. The cumulative growth in industrial output for FY15 came in at 2.8% (y/y), an improvement from the contraction of 0.1% (y/y) recorded in FY14. The improvement in industrial growth in FY15 can in part be attributed to the favorable base effect. Amongst the sector, the electricity segment recorded the highest growth of 8.4% in FY15 (6.1% in FY14), manufacturing grew by 2.3% (-0.8% in FY14) and mining & quarrying grew by 1.4% (-0.6% in FY14). Going ahead, industrial production is likely to see an improvement in FY16, albeit a gradual one. Growth in industrial output would necessary require higher investments from the government, an increase in investments (public as well as private) and stalled projected being brought online.

Consumer Price inflation moved further southwards to 4.87% in April ’15 from 5.25% in March’15 and 8.48%in April’14. This decline has been on account of a decline in food inflation while inflation across the other segments remained at almost the month ago levels. Despite the downward trend in retail inflation, there is an upward risk emanating from the uncertainty pertaining to monsoon and the recent increase in global oil prices. Further, the weakening of the Rupee against the USD would also exert some pressure on retail prices. Thus, given the upward threats, we expect RBI to hold interest rate at the existing level in its next policy announcement.

DisclaimerThis report is prepared by the Economics Division of Credit Analysis &Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report.

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