December IIP no at 2pc, rate cuts ahead

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posted on 15 years ago — updated on 1 second ago

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A significant fall in manufacturing output may have led to the drastic fall.

The December index of industrial production (IIP) number has come in at -2 per cent versus 8 per cent year-on-year (YoY).

A significant fall in manufacturing output (-2.5 per cent versus 8.6 per cent YoY) and consumer durables growth (-12.8 per cent versus 2.8 per cent) may have led to the drastic fall.

The November IIP number has also been revised to 1.7 per cent from 2.4 per cent earlier.

"It has come as a shock, especially with the deep contraction that we are seeing especially in the durables and importantly in the intermediates too," Chief Economist of Yes Bank, Shubhada Rao said

Rao added that she sees subdued growth ahead. "However, the third quarter was probably the worst one in the fiscal. Starting January we are getting some positive inputs as far as some improvements month over month," she added.

Commenting on the IIP numbers, Senior Economist ABN AMRO Bank, Gaurav Kapoor, said, "I am not completely surprised because the Purchasing Managers' Index (PMI) recorded its lowest reading in the history of the survey and the output index went down all the way to 40.6 and combined with the very high base effect, that all has added up to a number of -2 per cent.

"For calendar year 2009, we are looking at around 6 per cent growth but there is clear downside risk to it," Kapoor added.

Kapoor said that the stage is now set for the Reserve Bank of India to cut rates due to lowering inflation and the government's Rs 46,000 crore borrowing. "You would see a rate cut on or before the interim Budget. It's only a matter of time now," he said.

"We are looking at a half percent both on repo and reverse repo. In fact, we were expecting it in the January policy but clearly before March end, we expect a policy rate cut," Rao said.

The IIP break-up: