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ECOSCOPE: Macroeconomic data set the stage for a rate cut

12-Jul-2017

Like in the past few months, CPI inflation eased more than expected to 1.5% YoY in June 2017, lower than market consensus of 1.7% and our expectation of 1.6%. Although food prices (food price index down more than 2%) were the key driver of lower inflation, we note that the deceleration was broad-based.
Further, the index of industrial production (IIP) grew 1.7% YoY in May, lower than our estimate of 2.4%, but higher than market consensus of 1.5%. It was driven primarily by a decline in mining activities.
Macroeconomic data provide sufficient room to the monetary authority to cut policy rates next month. However, the RBI's June minutes do not provide sufficient confidence to us. As we pointed out in our last report, higher growth in minimum support prices (MSPs), along with farm loan waivers totaling more than INR1,000b, may prompt the RBI to wait for some more time.

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