20 Nov, 2014

October CPI eases to 5.52% and September IIP recovers to 2.5%, has the time of rate cuts started?

On Wednesday November 12, the October 2014 inflation data was revealed which cooled off to 5.52% compared to October last year. It has touched the historically low level since the Govt. initiated to compute CPI in 2012. Also the IIP grew to 2.5%

September IIP grew by 2.5% as against the revised August IIP of 0.5%. Mainly lead by growth in manufacturing sector which grew at 2.5% against -1.45% on month on month basis.

CPI cooled off to 5.52%% against September CPI of 6.46% and 10.17% in October last year. Finally the RBI has achieved its target to bring CPI below 6% by January 2016 much earlier than it expected. It was triggered by lower fuel cost and easing food prices. Consumer Food Price Inflation, which has the major weightage of above 42% in CPI, has come down to 5.59% compared to 7.67% in September 2014 and 12.93% in October 2013.

Inflation numbers have come down and trend may also continue in coming period as international crude oil prices will continue to ease and winter season’s vegetables will bring the prices further down.

This data has increased the hopes to see rate cuts in coming monetary policies. RBI hadn’t changed rates since Jan 2014. With new govt. coming into power this year, Govt. wants to increase the growth. As now inflation is coming into control, govt. may start pushing some pressure on RBI regarding the rate cuts which India Inc is expecting from a long period. RBI governor though may wait for 1-2 months to verify the trend before cutting the rates and if it continues then he will have to cut the rates.

All these factors are good for Indian markets. As when the trend of rate cuts will start we will see market touching new highs.

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