RBI keeps repo rate unchanged at 6.75%

01 Dec '15

4 min read

The Index of Industrial Production picked up in the second quarter. Early results of the Reserve Bank’s order books, inventories and capacity utilisation survey indicate that there was robust growth in new manufacturing orders in the second quarter, and finished goods inventories declined while raw materials inventories increased. Not all indicators, however, are positive. While urban consumption is showing signs of a pick-up in some areas such as passenger vehicles sales, rural demand has been weakened by two consecutive deficient monsoons and slowing construction activity. Nevertheless, new project announcements as measured by the Centre for Monitoring Indian Economy grew more strongly in the second quarter. It remains to be seen whether growing public investment can crowd in private investment on a sustained basis, despite the still-low capacity utilisation.

In the external sector, exports contracted for the eleventh month in a row to October, indicative of the persisting weakness in global trade. Excluding petroleum products (PoL), however, the decline in exports was more moderate and early signs of a turnaround are visible in respect of readymade garments, drugs and pharmaceuticals and electronics. With global commodity prices, especially those of crude, softening further, both PoL and non-PoL exports continued to contract, with the latter shrinking for the fourth consecutive month. The decline in bullion imports despite the festival season helped narrow the trade deficit in October as well as over the financial year so far, moderating the current account deficit further. Net foreign direct investment (FDI), external commercial borrowings and accretions to non-resident deposits have risen in relation to last year; however, portfolio outflows from both debt and equity segments rose in November. During 2015-16 (up to November 20), there has been an accretion of $10.8 billion to the foreign exchange reserves.

Since its bi-monthly monetary policy statement of September, inflation has turned up as anticipated, and is expected to rise further until December before plateauing, RBI said. In the coming months, inflation is expected to broadly follow the path set out in the September review with risks slightly to the downside, it added.

The sixth bi-monthly monetary policy statement will be announced on Tuesday, February 2, 2016. (RKS)

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