India’s industrial production’s contraction deepened in September with output falling 4.3 percent year-on-year after falling 1.4 percent in August. The details indicated that the manufacturing component dropped 4 percent, consistent with the clear downtrend in manufacturing PMI since the beginning of 2019, while capital goods dropped 21 percent, in line with soft investment. However, the outlook still appears challenging as the economy stays mired in a part-cyclical and part-structural slowdown, noted Commerzbank in a research report.
Nevertheless, the policy stance has been supportive and subsequent quarters could be helped by favourable base effects.
If India’s inflation were to continue to run above 4 percent, this might cast doubts over another RBI rate cut in 2019.
“With real rates still relatively high, we remain of the view that RBI is likely to push through with another 25bp cut when they next meet on 5-December. We continue to hold an upside bias for USD-INR and expect it to head toward 72.00 by year-end”, added Commerzbank.
