April Index for Industrial Production seen at 13.3% by economists

The Index for Industrial Production (IIP) in April is expected to continue in double digits for the seventh straight month.

As per a median forecast of 13 economists polled by DNA, IIP for April is seen at 13.3%. The index stood at 13.5% in March.
“Steady consumption demand, benign interest rate situation, comfortable liquidity and initial signs of return of capex has helped IIP to be in double digit,” said Siddhartha Sanyal, economist with Edelweiss Capital.

Economists see the IIP numbers moderating. “This is becasue the base effect will become unfavourable and there will be moderation in sequential growth,” said Abheek Barua, chief economist, HDFC Bank.

The low base effect is expected to wear off June onwards and the IIP will fall to single digit. “But it will continue in high single digit for some time,” said Anubhuti Sahay, economist, Standard Chartered Bank.

The IIP numbers were as high as 17.7% in December. Then it slowed to 16.7% in January and 15.1% in February.

The moderation in IIP numbers and the softening of Wholesale Price Index inflation from the March peak may reduce pressure on Reserve Bank of India (RBI) to taper with the rates before the policy review to be held on July 27. “We are not expecting a mid-policy hike in rates by the RBI,” said Namrata Padhye, economist, IDBI Gilts.

But economists do expect rates to go up further from here.

“Tightening in policy interest rates likely to continue in “baby steps” ensuring no negative impact on domestic liquidity, credit off-take and growth recovery in general,” said Sanyal.

“We believe, repo and reverse repo rates will witness a cumulative tightening of 100 basis points each during FY11. However, with CRR already at its long-run ‘steady-state’ level of 5.5-6.0%, the central bank is less likely to resort to further use of this policy instrument unless capital flows surprise on the upside,” he said.