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CPI at 3.78%; IIP records 3.8% growth Robust IIP, low inflation fuel rate cut clamour

The data will bolster the industry clamour for a cut in rate, which was kept unchanged in the monetary policy review on August 4.

By: ENS Economic Bureau | New Delhi |
Updated: August 13, 2015 1:42:33 am

Bringing in some relief for the government, retail inflation fell to a record-low of 3.78 per cent in July while the industrial production recorded a four-month high growth of 3.8 per cent in June, raising hopes for a softening of the Reserve Bank of India’s stance on interest rate.

Armed with the twin set of data positive macro-economic indicators, finance minister Arun Jaitley said that the growth in manufacturing shows that the economy is firmly on the growth path. Commenting on the development, finance secretary Rajiv Mehrishi said that with crude prices still falling, inflation is expected to remain under control while the growth in index of industrial production (IIP) reflected that the “economy is on mend… consistent with the growth in indirect taxes”.

According to the consumer price index data, retail inflation cooled to record low of 3.78 per cent in July compared to 5.4 per cent in June. While food inflation was down to 2.8 per cent in July from 5.73 per cent in June, inflation in items within the food basket such as pulses remained steady at 22 per cent while prices of items like fruits and vegetables, eggs and milk products have softened. The Reserve Bank of India has targeted to keep retail inflation at less than 6 per cent.

Further, IIP grew 3.8 per cent in June on sharp rebound in demand for consumer goods. However, it was lower compared to 4.3 per cent in June last year. The data will bolster the industry clamour for a cut in rate, which was kept unchanged in the monetary policy review on August 4.

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CII director general Chandrajit Banerjee said, “Easing of the July retail inflation … should motivate the RBI to resume its rate easing cycle in its next monetary policy especially as the capital goods sector is in the red indicating that new business orders are expanding at a notably slower pace as high interest costs are adversely impacting investment decisions.”

As per the data, the IIP growth for May has been revised downwards to 2.5 per cent from the earlier estimate of 2.7 per cent. For the first quarter (April-June) of the current fiscal, the industrial production is at 3.2 per cent, as compared to 4.5 per cent growth in the year-ago period.

Manufacturing, which constitutes over 75 per cent of the index, grew at 4.6 per cent in June compared to 2.9 per cent in the same month last year. During the April-June period, the sector has grown 3.6 per cent, compared to 3.9 per cent in the year-ago quarter.

As far as retail inflation is concerned, it has halved over the 19 months from double digit levels, giving the RBI scope to ease policy rates to help boost growth. The RBI has lowered the repo rate by 75 basis points this year and analysts are hoping that July’s data will lead to further monetary easing.

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