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November IIP likely to contract by 1.5%: BofA Merrill Lynch

Last Updated: Wednesday, January 9, 2013 - 18:14

New Delhi: Bank of America Merrill Lynch Wednesday said India's industrial output for the month of November is likely to contract by 1.5 percent largely owing to post-Diwali base effect.

"November industrial growth will likely contract by 1.5 percent on post-Diwali base effects after jumping 8.2 percent last month to meet pre-Diwali consumer demand," Bank of America Merrill Lynch India economist Indranil Sen Gupta said in a research note.

According to the report, the December inflation will likely continue to peak off to 7.3 percent.

Against this backdrop of growth slowing and inflation topping off, the Reserve Bank of India is likely to cut key policy rates by 0.25 percent on January 29, Bank of America Merrill Lynch said.

"We expect the RBI to cut policy rates by 0.25 percent on January 29 to signal lower rates with inflation coming off in the March quarter. It will likely also cut rates by an additional 0.50 percent by June with inflation likely to dip below 7 percent," Gupta said.

India had been growing around 8-9 percent before the global financial meltdown in 2008. The growth rate in 2011-12 slipped to a nine-year low of 6.5 percent.

According to the official data, the Indian economy grew by 5.3 percent in the July-September period this year, while in quarter ended June 30, the economy grew by 5.5 percent.

In the mid-quarter monetary policy review on December 18, RBI kept key interest rates unchanged.

The Reserve Bank of India (RBI) left the short-term lending (repo) rate and the cash reserve ratio -- the amount of deposits banks have to park with RBI-- unchanged at 8 percent and 4.25 percent, respectively.

Retail inflation, based on consumer price index (CPI), remained close to double digits at 9.90 percent in November, while, the WPI inflation in November stood at 7.24 percent.

Though these levels are much above the Reserve Bank's comfort zone of 5-5.5 percent, inflation is showing some signs of easing in recent months.

According to the report, inflation is likely to cross 7.5 percent in the second half of FY13 again on oil price and power tariff hikes in the window between the March and November state polls and this will likely halt RBI easing.


First Published: Wednesday, January 9, 2013 - 18:14
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