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IIP at 8.2% but buoyancy in manufacturing unlikely to sustain

Economy Dec 12, 2012

IIP shows unexpected surge; rate cut unlikely as CPI stays high

By Firstbiz Staff

India's factory output in October grew 8.2 percent on year, much higher than expected. The IIP data for September had shown a decline.

The September print has been revised to -0.7 percent from provisional -0.4 percent .

A Reuters poll had expected a 4.5 percent annual rise.

The cumulative growth in April-October was 1.2 percent.

During, October the mining output declined 0.1 percent, while manufacturing and electricity grew 9.6 percent and 5.5 percent, on year.

During, October the mining output declined 0.1 percent, while manufacturing and electricity grew 9.6 percent and 5.5 percent, on year. Reuters

On a cumulative basis, the mining output during April-October declined 0.7% and that in manufacturing and electricity grew 1 percent and 4.7 percent, respectively.

Chairman of the Prime Minister's Economic Advisory Council C Rangarajan said "Much better performance in the second half was expected, however 8.2 percent growth beats expectation."

He, however, said the RBI is likely to more focused on consumer price index which came in at 9.9 percent for the month of November against 9.75 percent in the previous month.

The central bank has indicated that it is likely to cut rates only in January.

Bank of America Merrill Lynch expects the RBI to leave key policy rates unchanged and cut CRR by 0.25 percent at its mid-quarter monetary policy review next week.

BoA said the RBI will resume cutting rates only from January, once inflation peaks off.

"We expect the RBI to resume cutting rates only from January - 75 basis points (0.75 per cent) till July - once inflation peaks off," the report said, adding that "RBI rate cuts will not transmit into lending rate cuts unless the liquidity situation improves."

Over the past three months, the Reserve Bank has reduced the CRR, the portion of deposits banks are required to keep with the RBI, by 0.50 percent to 8 per cent. But these cuts did not lead to an easing of overnight rates.

Economists were, however, not enthused. They remained suspicious whether the positive IIP is a trend. Will it show any improvement going forward, remains to be seen, they said on CNBC TV18.

Many analysts in the Reuters poll attributed positive factory output growth in October to a weak statistical base from a year ago when it shrank 5 percent, rather than an improvement in actual production.

Read the full press release here.

by Firstbiz Staff

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