Even with the Index of Industrial Production data contracting sharply at (-) 1.8% in the month of June, economists and analysts are of the view that the RBI is unlikely to change its policy stance.

Ms Radhika Rao economist forecast PTE said that the RBI has made it clear that a rate cut at this juncture would stoke inflation risks rather than support growth on a sustained basis. Ms Rao said that "Contraction in July IIP is disappointing though it validates that the production sector remains in doldrums. Note also the sharp 28% drop in capital goods production, which continues to distort the headline print.”

The data she feels, will pile pressure on Chidambaram to jump start the reform process and revive investment interest, which is likely to be a key drag on overall growth. She said that "This data is unlikely to have a material impact on the policy direction unless government addresses some of the structural growth constraints.”

Stating that the emphasis of RBI will still be on inflation, Robert Prior-Wandesforde, Economist, Credit Suisse said that this kind of weakness in growth has been seen for sometime. He said that "Reserve Bank of India has been ignoring it. History suggests that they will continue their focus on inflation.”

Echoing similar sentiment, Mr Anubhuti Sahay economist Standard Chartered Bank said that any rate cut is unlikely Mr Sahay said that "This is yet another reminder of growth woes and will be drag on April to June gross domestic product data. However, with inflation still at elevated levels and increased upside risk on less than adequate monsoon, any rate cut is unlikely to come soon.”

Mr Indranil Pan chief economist of Kotak Mahindra Bank also opined that the IIP data is 'unlikely to be a clincher for the RBI in terms of its rate decision.'

He added tha "Significant dip in the capital goods numbers have pulled down the manufacturing numbers. However, we think that the erosion in the IIP is unlikely to be significant from hereon and there should be some technical bounce coming back with the low base of the last year kicking in soon.”

Source - Economic Times

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