2 min readFeb 14, 2014 02:59 AM IST
First published on: Feb 14, 2014 at 02:59 AM IST
Data released on Wednesday on factory output and retail inflation gives industry a sense that rate cuts could happen in April. Industrial production contracted further in December to a cumulative 0.1 per cent but more significantly consumer price index based inflation has eased for the second straight month to a much more comfortable 8.79 per cent. The rate is close to the RBI target for 8 per cent as per its glide path plan for inflation targeting.
The pressure for the industry stems not only from the interest rates but also the tightness in the money market. On Tuesday, the bank announced it will push in Rs 20,000 crore through repo in the markets and this is in addition to the Rs 10,000 crore it has already issued this week. The sums would mean RBI would be even more vigilant these do not add to inflation momentum in the months ahead.
The costs are obviously hurting for industry as rates have not come off their highs. The big question for them will be how the government manages its fiscal position in the next fiscal, at least till a new government is sworn into power in May. Monday’s vote-on-account should give some indication.
A closer look at the CPI data for January reveals that core inflation (inflation minus food and fuel) is persisting at near 8 per cent and despite the RBI measures, refuses to ease. Economists have warned that simultaneously retail inflation after easing to a more comfortable 8 per cent by next month could begin creeping up again soon thereafter. The monsoons will play a major role in deciding how this trend pans out. So it seems a combination of sticky inflation and costly money will continue to squeeze profit margins. The manufacturing sector is estimated to contract by 0.2 per cent this fiscal.
In an unrelated event, the ministry of statistics and programme implementation is updating the CPI inflation index with a lower weightage on food but until then, solving the food inflation conundrum will undoubtedly, be the big issue.
Surabhi is a special correspondent based in New Delhi
surabhi.prasad@expressindia.com
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