Retail inflation decelerated sharply to 5.05% in August, while industrial production contracted by 2.4% in July, the lowest in eight months
New Delhi: India’s new macroeconomic numbers, the last before the Reserve Bank of India (RBI) meets for its 4 October review of monetary policy, pose a dilemma for its new governor Urjit Patel.
Retail inflation decelerated sharply to 5.05% in August, while industrial production contracted by 2.4% in July, the lowest in eight months. Together, these numbers make a case for another rate cut.
The fall in retail inflation from 6.07% in July was because vegetable prices showed a sharp correction while the index of industrial production (IIP) fell due to the 3.4% fall in manufacturing output.
A Reuters poll of economists had projected retail inflation, which RBI tracks to set its interest rate policy, at 5.5% in August.
Raghuram Rajan, whose tenure as governor ended on 4 September, left interest rates unchanged last month, flagging upside risks to the inflation target.
Analysts expect inflation to subside with prospects of bumper harvest on the back of a good monsoon.
Aditi Nayar, senior economist at credit rater Icra Ltd, said that going forward, a favourable base would ensure that retail inflation remains in the range of 4-5% for the rest of the year, with a trough in November 2016 and a gradual upward movement in the subsequent months of the fiscal.
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