Waiting for Fed to talk up sentiment - Indian Express

Anil Sasi : Thu Jun 13 2013, 03:30 hrs Two keenly awaited data sets — on industrial output and retail inflation — released by the government on Wednesday reaffirms the policy dilemma facing the Reserve Bank of India as it gears up to take a call next week on whether to slash policy rates further. While the IIP growth for April at 2 per cent was lower than the market expectation, the CPI-based inflation for May came in at 9.31 per cent, which, despite being lower that April's 9.39 per cent, is way above the sub-9 per cent being expected by the market. For the RBI, it's a Hobson's choice. The slowing IIP may offer a compelling case for cutting interest rates. But with the rupee still hovering close to its all-time low, and consumer inflation not showing any substantive reduction, pruning interest rates could turn out to be counter productive. The IIP print for April is particularly worrying as it offers really no sign of a pick up in growth. The 2 per cent surge in output comes on the back of a very low base. Plus, the capital goods growth, at 1 per cent year-on-year, points to an over 10 per cent sequential deceleration on a seasonally adjusted basis — clearly a worrying sign as the sector is seen as a proxy for future investment. Even though there is some good news in the consumer non-durables sector, the consumer durable segment has tanked badly. The real worry, according to most analysts, is that the slowdown visible in April is not accounted for by sectors dominated by the government such as mining and electricity, but rather the manufacturing sector that is proving to be the drag. The dilemma for the policy holders is high as they grapple with the growth-inflation dynamics, but the the overwhelming view is that given the continuing pressure on the rupee, fresh rate cuts may be held in abeyance till stability returns into the currency markets. Key to that could be the US Federal Reserve's upcoming policy meeting that concludes June 19. The prevailing view is that the Fed may clarify that quantitative easing will remain in full force until 2014. For the rupee, and other emerging market currencies, an announcement on these lines could offer a much-needed booster. ... contd. ALSO READ Another lost battle on police reforms Pairs fail to match solo acts Pawar's much undone about nothing Board goes after the easy targets Please read our terms of use before posting comments TERMS OF USE: The views, opinions and comments posted are your, and are not endorsed by this website. You shall be solely responsible for the comment posted here. The website reserves the right to delete, reject, or otherwise remove any views, opinions and comments posted or part thereof. You shall ensure that the comment is not inflammatory, abusive, derogatory, defamatory &/or obscene, or contain pornographic matter and/or does not constitute hate mail, or violate privacy of any person (s) or breach confidentiality or otherwise is illegal, immoral or contrary to public policy. Nor should it contain anything infringing copyright &/or intellectual property rights of any person(s). via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGvSBxkDfri86HrDzmVe4AKf2131A&url=http://www.indianexpress.com/news/waiting-for-fed-to-talk-up-sentiment/1128503/

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