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RBI likely to cut rate over flat IIP, moderate inflation

Muted industrial output numbers in July have increased prospects of further rate cuts by the RBI, coupled with August retail inflation that came in below the central bank’s target range of 4-6 per cent.


By   |  Updated On : September 12, 2017 08:44 PM
 RBI likely to cut rate over flat IIP, moderate inflation

RBI likely to cut rate over flat IIP, moderate inflation

New Delhi :  

Muted industrial output numbers in July have increased prospects of further rate cuts by the RBI, coupled with August retail inflation that came in below the central bank’s target range of 4-6 per cent.

While the index of industrial production (IIP) during July slipped on account of manufacturing poor show, retail inflation rose to a 5-month high of 3.36 per cent in August due to costlier vegetables and fruits, according to data released by the Central Statistics Office (CSO) on Tuesday.

Last month, the RBI had cut its key lending rate by 25 basis points to 6 per cent in view of softening inflation. The next monetary policy review is due on October 4.

“Not at all, in fact, the fact that prices have gone down to 2.36 per cent from last year was itself a situation that happens often all. The RBI has 4-6 per cent inflation range, we are still below that range also,” Union minister Piyush Goyal replied to a query on whether he is concerned about the rise in retail prices.

Factory output, measured in terms of IIP, had declined by 0.2 per cent in June. During April-July, IIP grew by 1.7 per cent, down from 6.5 per cent in the same period last year.

Growth of the manufacturing sector, which makes up 77.6 per cent of the index, decelerated sharply to 0.1 per cent in July compared to 5.3 per cent in the same period of 2016.

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Output of capital goods—a proxy for infrastructure investments in the country—contracted 1 per cent in July as against a growth of 8.8 per cent in the year-ago period.

Consumer durable goods met with similar fate, with production declining 1.3 per cent as against a nominal growth of 0.2 per cent a year earlier.

However, electricity generation stood out as it posted a growth of 6.5 per cent in July, up from 2.1 per cent in July 2016. Mining output, too, expanded by 4.8 per cent, as against 0.9 per cent in the year-ago month.

In terms of use-based classification, growth rates in July 2017 over the same month last year stood at 2.3 per cent for primary goods, (-)1.8 per cent for intermediate goods and 3.7 per cent for infrastructure and construction goods.

Consumer non-durables have recorded a growth of 3.4 per cent.A total of eight out of 23 industry groups in the manufacturing sector grew in July 2017 compared to the corresponding month last year.

According to consumer price index (CPI) data, retail inflation stood at 2.36 per cent in July.

The August inflation number is the highest since March 2017, when it was recorded at 3.89 per cent.

Overall food inflation in August also moved up, reversing the deflationary trend, to 1.52 per cent, the government data showed on Tuesday.

Daily consumables like fruits and vegetables turned costlier during the month, with inflation print coming in at 5.29 per cent and 6.16 per cent, respectively, as against 2.83 per cent and (-)3.57 per cent in July, the CSO data showed.

Likewise, prepared meals, snacks and sweets as a category turned pricier, with the rate of price rise at 1.96 per cent, up from 0.43 per cent in July.

Also, transport and communication means became costlier during the month, with inflation rising to 3.71 per cent from 1.76 per cent in July.

However, items such as cereals and products, meat and fish, oils and fats became cheaper at inflation readings of 3.87 per cent, 2.94 per cent and 1.03 per cent, respectively.

First Published: Tuesday, September 12, 2017 08:36 PM


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