Mumbai: The Reserve Bank of India (RBI) needs to soften its economic growth narrative and lower its projections for the current fiscal year.
That’s the view of Mumbai-based SBICap Securities Ltd after data released 11 January showed India’s industrial production in November grew 0.5% from a year ago, much lower than the expected 3.6%. RBI needs to cut its GDP growth projection for the year ending March closer to 7% from 7.4%, according to SBICap, to reflect the likely case of below 7% expansion in the second half.
“We hope the monetary policy committee members turn realistic and acknowledge the softness in domestic growth with some feedback into their decision," SBICap economists Arjun Nagarajan and Amol Bhoir wrote in a note. “The industrial production numbers must push the members to re-examine their growth narrative."
Weaker growth and the possibility of inflation undershooting the 2% lower boundary of RBI’s inflation target range are adding to calls for interest rate cuts this year. Inflation probably eased to 2.2% in December from 2.3% in the previous month, according to a Bloomberg survey of economists ahead of data due later on Monday.
“Slowing growth and muted inflation will pave the way for a change in stance by the RBI at its February meeting, followed by rate cuts of up to 50 basis points in the first half of the next financial year," said Teresa John, an economist at Nirmal Bang Equities Ltd. in Mumbai.
One basis point equals one-hundredth of a percentage point.
Manufacturing led the sharp drop in industrial production in November, declining 0.4% from a year ago, with only 10 out of 23 manufacturing sectors recording positive growth, compared to 22 in the previous month.
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