The ndustrial growth will not return to a sustained and high growth path as long as excess capacity in the manufacturing sector remains and private sector investment cycle does not revive
New Delhi : The sharp fall in retail inflation in August has increased the chances of monetary easing by the central bank, India Ratings and Research (Ind-Ra) said on Tuesday.
Retail inflation cooled to five-month low of 5.05 per cent in August, reviving hopes for a rate cut by RBI to boost growth.
“This has made the central bank’s target of bringing retail price inflation down to 5 per cent by March 2017 achievable; however, it may be early to rejoice given the baffling behaviour of retail inflation in the past,” the rating agency said in a statement.
“The cyclical components either aggravate or soften it as is evident from the movement in wholesale prices,” it added.
Ind-Ra opined that industrial growth will not return to a sustained and high growth path as long as excess capacity in the manufacturing sector remains and private sector investment cycle does not revive.
The Index of Industrial Production (IIP) contracted 2.4 per cent in July 2016 as against a growth of 2.0 per cent in June.
The rating agency said it believes scope for RBI action on rate front appears skewed towards December policy review than October 2016, although the sharp fall in inflation from 6.1 per cent in July 2016 is likely to accentuate the expectation of rate cut in the October review itself.
