Cue For RBI To Cut Rates? Retail Inflation Down To 2.33%, Industrial Growth Surges To Year-Long High Of 8.1%

Index of Industrial Production (IIP) increased by 8.1 per cent for October (2018), representing the fastest industrial growth in almost a year. On the other hand, retail inflation was down to 2.33 per cent, which is the lowest it has been in the last 17 months, as reported by Business Standard (BS).

IIP, published by CSO (Central Statistics Organisation), measures the short-term changes in the volume of production of a specific basket of industrial goods, in a given period. Usually, a month is taken as the unit of measurement. Retail Consumer Price Index (CPI) is published by the Reserve Bank of India (RBI).

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With such macroeconomic parameters evolving in the Indian economy, markets expect the RBI to respond with an interest rate cut soon, which will further unlock the potential for the growth.

“Benign inflation, along with softening economic activity as seen by lead indicators, may provide space to MPC (Monetary Policy Committee) to change its stance in February and follow it up with a rate cut,” Kotak Mahindra Bank economist, Upasna Bhardwaj, noted.

It should be noted that interest rates (the rate at which individuals and firms can take loans from banks) and inflation (general increase in prices in an economy over a period of time) usually have an inverse relationship.