How do you see the RBI reacting to inflation and IIP numbers in its Feb 2022 policy?

When the RBI meets for its policy in February 2022, the big question is how it would react to the IIP and inflation data that has come out already. Let me talk about inflation first. CPI inflation at 5.59% is sharply higher compared to Nov-21. During the month, the food inflation spiked while the core inflation stayed put above the 6% mark. In short inflation is certainly a worry and makes a case for raising the repo rates.

But the IIP gives a contrasting story. IIP for Nov-21 was lower than expected at 1.42%. That will not be good enough growth to justify rate hikes. RBI needs most durable growth before rates can be hiked. The likelihood is that in February RBI may want to raise rates due to sharply higher inflation but weak IIP growth rates may constrain the company.