Good news on economy, but RBI may not cut rates



Good news for the Indian economy and the common man poured in from several quarters on Monday, on the eve of RBI governor Raghuram Rajan’s next monetary policy review.

Global crude prices fell to a five-year-low of $68 per barrel during the day, prompting the public sector oil marketing companies to cut the price of unsubsidised LPG cylinders by Rs. 113 from Rs. 865 to Rs. 752.This came a day after prices of petrol and diesel were cut by almost Re 1 per litre. Falling global prices are expected to lead to more cuts in the prices of petrol, diesel and LPG in the months to come and a further fall in the retail and wholesale inflation rates, which are at multi-year lows.

Then, eight core sectors, which form the backbone of the Indian economy, rebounded sharply, growing 6.3% in October, compared to 1.9% in the previous month and a decline of 0.1% in October last year, figures released by the commerce ministry showed.

 And sales of cars by Maruti Suzuki, Hyundai, Honda, Toyota and Tata rose sharply in November, after three months of decline, indicating a revival in consumer demand.

If this trend of industrial growth and rising demand sustains, it could lead to a stronger economic revival, creating more jobs, putting more money in people’s pockets.

Adding to the cheer, a survey by Jones Lang LaSalle, a leading real estate consultant, showed a 58% rise in demand for office space. The implication: companies are once again expanding operations. Typically, a rise in demand for office space is followed, with a lag of a few months, with a growth in job creation.

The HSBC Purchasing Manager’s Index, a measure of economic growth, for India’s manufacturing sector in November also indicated a revival, rising to a 21-month high.
But experts cautioned against reading too much into these developments. “There are mixed signals from the economy and though manufacturing has shown an improvement, this cannot be taken as a decisive sign of recovery,” DK Joshi, chief economist, Crisil, told HT.

Analysts said Rajan, who will announce his next monetary policy review on Tuesday, may not cut rates to spur economic growth further despite moderating inflation.

BI may not cut rates