More rate cuts? Factory output likely slowed in Jan; Feb inflation below RBI target

Indian factory growth probably lost more momentum in January while inflation remained below the Reserve Bank of India's target last month, bolstering chances of further interest rate cuts, a Reuters poll found.

The median forecast from the survey of 24 economists showed annual growth in industrial output slowed to 0.65 percent in January from December's 1.70 percent, its second straight month of easing.

"We are still stuck in a bit of a rut of having got out of the bottom but still trying to meaningfully escape or hit a sustainable recovery. We are looking at a muddle-through kind of scenario," said Jyotinder Kaur, principal economist at HDFC Bank.

 More rate cuts? Factory output likely slowed in Jan; Feb inflation below RBI target

Reuters

In his first full-year budget on 28 February, finance minister Arun Jaitley announced several initiatives to boost India's industrial sector, particularly infrastructure.

However, none of those announcements will have any effect unless they are implemented. And that could be a tough task since prime minister Narendra Modi's ruling party does not hold a majority in the Rajya Sabha.

According to Kaur, key drivers of industrial production such as auto sales and exports foretell a disappointing outlook for industrial growth.

Retail inflation was also probably subdued in February. The poll median showed inflation edged up to 5.20 percent last month from January's 5.11 percent on higher food prices.

Predictions for wholesale prices turned more negative as oil prices remained low. Having already sunk to a more than five-year low of -0.39 percent in January, the poll predicted a further decline to -0.70 percent last month.

Weak factory output and inflation below the 6 percent level the RBI is targeting by January could push it to ease policy further.

A separate Reuters survey showed the central bank will still be wary of a pick-up in inflation and only reduce rates gradually.

The RBI surprised markets with another 25-basis-point rate cut last week to take the repo rate to 7.50 percent, its second such move this year, even though data showed India's economy grew 7.5 percent in the last quarter, outpacing China.

Reuters

Updated Date: Mar 10, 2015 10:10:49 IST