Uncategorized

RBI to keep policy on hold despite weaker economy

As RBI is scheduled to announce mid-quarterly review of monetary policy on September 17; Simon Rubinsohn, Chief Economist, RICS has shared some comments on expectation from the meet
Further insight on the current state of the Indian economy will be provided with the release of July industrial production data on Wednesday 12th and August WPI (inflation) on Friday 14th. Recent news flow has generally been a little downbeat but the picture is not a uniform one. So while the manufacturing PMI has continued to edge lower and exports have been badly impacted by developments in the euro area (down 14.8% year on year), the service sector continues to demonstrate a measure of resilience. Industrial output has fallen in three of the last five months with the last reading showing output almost 2% down on June 2011. Largely because of base effects, it may be the case that the annual comparison in the forthcoming data for July shows a more modest rate of decline but there is unlikely to be very much more positive to read into the number.   Meanwhile, it is quite conceivable that the better trend in WPI inflation is at least in part reversed. The July number came in at 6.87% which compared with a reading of 7.25% in June and was the lowest figure in three years. However, over the past few weeks global oil prices have been rising once again and the drought suffered in parts of India is threatening to have an impact on the cost of basic foodstuffs. Against this backdrop, we are not convinced that the Reserve Bank of India will look to lower interest rates any further when it next meets on Monday 17th despite the ongoing concerns about the slowing pace of economic activity.  For the time being, the more sluggish economy appears to be having a mixed impact on the real estate sector. As far as the commercial property market is concerned, RICS data suggests that there has been a shift in sentiment with both occupier and investment markets losing some momentum. However, although that does follow a strong performance particularly in 2010 and the early part of 2011. Meanwhile, in the residential market prices appear to be holding up even if activity is a little less robust. The Q2 NHB Residex numbers actually show a generally firmer picture than in the first three months of the year.

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Most Popular

To Top