23 Nov 2016

Further monetary stimulus

This liquidity effect will sustain a benign background for monetary policy while continued weakness in food prices is pulling CPI inflation below expectations. October CPI was 4.2%, as food inflation dropped to 3.5% from more than 7% the previous month. The softness was confirmed in wholesale prices as the WPI retreated by 0.2% to 3.4% in October. The Index of Industrial Production rose by 0.7% in September, reversing a similar decline in August. The consumer durable sector reported 14% growth and manufacturing was in the black by 1%; capital goods contracted by 14% and mining (mostly coal) by 3.1%. Against this background, the new RBI MPC is confidently expected to add further monetary stimulus with a repo rate cut in December. 

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