IIP growth, at 11.5% Y-o-Y, has been lower than the most conservative Street estimate; we had estimated 13-14%. The median street estimate was ~16.2%.
The big cyclical uptick is largely over for IIP, and in the coming months the number will fall further from the current level. IIP growth rate for June should be in high single-digits. The current number supports our view of absence of any generalised demand overheating in the economy. The downward revision of the April IIP number from 17.6% to 16.5%, Y-o-Y, also gels well with our expectation.
The current number does not alter our expectation of RBI action. We maintain our expectation of another 50-75bps hike in repo and reverse repo rates during the remaining months of FY11. This will take the repo rate to ~6% by March 2011. In the July 27 policy, we expect 25bps hikes in both repo and reverse repo rates.