InvestorQ : Do you see the RBI now cutting rates since the IIP is still contracting in August month?
diksha shah made post

Do you see the RBI now cutting rates since the IIP is still contracting in August month?

Answer
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2 weeks ago


The index of industrial production or IIP was announced by the MOSPI on 12 October for the month of August 2020. IIP is normally announced with a lag of 1 month. Here are some key features.

· Index of industrial production or IIP for the month of Aug-20 continued to remain negative at -8.0%. This is slightly better than the -10.5% contraction in July.

· Statistically, this is the sixth consecutive month of contraction in IIP and from a broader perspective there has been contraction in 9 out of the last 13 months.

· Within the overall constituents of IIP, the heavyweight manufacturing sector with a weightage of 77.6%, registered a decline of -8.6% in the month of August.

· Among the other two components, mining contracted by -9.8% while electricity generation contracted by -1.8%.

· An IIP contraction of around -8% implies that the industrial production is now reverted to 92% of pre-COVID levels, which is a positive takeaway.

· Clearly, the IIP number has been showing consistent improvement with the gradual opening up of the economy, but the real challenge could come now.

· Negative IIP implies that RBI would keep the stance accommodative well through the year 2021 to boost growth.

· However, with CPI inflation as high as 7.34%, I think, traders and analysts should forget about rate cuts for the time being and instead just focus on liquidity and accommodation.