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IIP data calms rate hike pressure on RBI: Moody’s unit

IIP data calms rate hike pressure on RBI: Moody’s unit
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First Published: Wed, May 12 2010. 04 44 PM IST
Updated: Wed, May 12 2010. 04 44 PM IST
Mumbai: The slow growth in India’s industrial production will reduce pressure on the country’s central bank to hike rates, Moody’s Economy.com said in a note on Wednesday.
The 13.5% growth in industrial output was the sixth straight double-digit monthly expansion, driven largely by robust manufacturing output. This compares with the median forecast in a Reuters poll for a rise of 15% and February’s figure of 15.1%.
“With the external situation highly uncertain and India’s financial system highly vulnerable to sudden capital outflows, now is not the time to aggressively withdraw liquidity and hike borrowing costs,” Nikhilesh Bhattacharyya, associate economist, Moody’s Analytics, wrote.
The central bank hiked its key policy rates by 25 basis points each on 20 April and there were expectations that there was a possibility of an inter-meeting move on before the 27 July policy review.
However, these worries have been calmed mainly owing to the uncertain global economic conditions.
Moody’s Economy.com also said it expects industrial production growth to decelerate further over the coming quarters and move closer to its trend rate.
It also expects production of consumer non-durable goods to pick up supported by easing consumer price inflation and accelerating income growth.
The note pointed out while manufacturing and mining production have decelerated significantly since January, electricity production has picked up.
Electricity production tracks GDP and the uptick in electrical output is a sign that growth is spreading to the broader economy, having been concentrated in manufacturing, mining and stimulus affected areas for the latter part of 2009, it added.
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First Published: Wed, May 12 2010. 04 44 PM IST