IIP Improves, But Economy Still in Gloom

The IIP data shows positive development in the manufacturing sector. The RBI has so far kept a tight watch on the economy and while it reduced, the repo rate for the first time in three years in April 2012, CRR cuts has been the policy adopted under growing inflation, enabling banks to have more funds for lending to industrial projects. This is aimed at providing the much required stimulus to production. Also, the government’s policy reform measures to boost investor confidence and attract more foreign investment is likely to bring more relief to the economy. However, the ever volatile currency market is adding to the exporters’ woes what with the rupee rising significantly against the dollar.

The inflation figures continue to be disappointing despite the RBI’s cautious monetary policy. The headline inflation for August came in at 7.5 percent which was way above the RBI’s desired rate of 5 percent. The September retail inflation is pegged at 9.73 percent. The inflation is likely to increase in the wake of the latest round of Quantitative Easing(QE3).The large influx of liquidity seems all set to raise the commodity prices; concerns recently expressed by Finance Minister ,P Chidambaram. The RBI is under a lot of pressure to ease rates especially with a dismal performance by the exports sector in comparison to the imports which have increased 5.09 percent to $41.78 billion. It remains to be seen whether it eases rates or stands firm, when it announces its monetary policy on October 30.