RBI should keep in mind these key four charts before setting the policy road-map for this new fiscal.
Raghuram Rajan, governor, Reserve Bank of India (RBI) is going to announce this first monetary policy of the new fiscal on April 7.
The industry has been clamouring for more rate cuts from the central bank but the past two repo rate reductions haven't had any impact on banks' lending rates.
Banks say that their cost of funds continue to be high. This leaves the RBI with other options like Credit Reserve Ratio (CRR) or an Statutory Liquidity Ratio (SLR) cut to bring down lending rates.
However, the RBI should keep in mind these key four charts before setting the policy road-map for this new fiscal.
Industrial Production (IIP)
India's industrial production has been on the downswing (see chart). This creates an issue for the RBI as growth in economy needs manufacturing sector to pick up.
The growth in eight core sectors that comprise 38% of the IIP slowed down to 1.4%, a 17-month low in February.
Also Read: Core sector growth slows to 17-month low of 1.4% in February
source: tradingeconomics.com
Inflation
Although inflation continues to be in the 'comfort-zone', it still has been climbing up steadily over the past few months.
The International Monetary Fund (IMF) has also warned the RBI that India's inflation might go beyond the targeted 6% rate next year. It has asked Rajan to run a 'tight ship'.
source: tradingeconomics.com
Food inflation
Even though consumer price index is in control, the food inflation figures are inching up every month and this is going to create an issue for the RBI.
source: tradingeconomics.com
Loan growth
Loan growth continue to dip and has settled under 10% for the month of February.
This shows that either India Inc doesn't have confidence in economy's revival or high lending rates are forcing them to wait before announcing mega investments. Either way, RBI has to act.
Also Read: Credit growth slows to 9.4% in February
source: tradingeconomics.com
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