Indian business sentiment fell close to the lows of 2014 in August, a Deutsche Boerse survey today said adding there is "strong possibility" that the RBI will go for a rate cut before the September 29 policy meet.
As per the report, Indian businesses were less confident about the business environment in August as subdued domestic demand offset the positive impact of lower inflation and interest rates.
As per the report, confidence has now declined for two consecutive months, wiping out the gains made in June on the back of the rate cut by the Reserve Bank of India. "There are not many positives to take away from the August survey. Overall business confidence declined back close to the lows of 2014," Chief Economist of MNI Indicators Philip Uglow said.
The decline in business confidence was driven by weaker domestic demand. New orders were flat during the month and consequently production rose only marginally. There was, however, one silver lining in this month's survey -- the pick-up in overseas demand. Improvements in advanced economies combined with the recent weakening in the rupee helped export orders to rise 4.9 per cent to 59.7.
On prices, the report said that inflationary pressures are easing further and in hand with the recent weaker official data this appears to open up space for the RBI to cut interest rates further. "The next policy meeting is in September but there is a strong possibility that they will decide to move before then," Uglow added. RBI Governor Raghuram Rajan, in his third bi-monthly policy of the fiscal, left benchmark lending (repo) rate unchanged at 7.25 per cent as also the cash reserve ratio (CRR) at 4 per cent.
The Reserve Bank of India has already reduced the policy rate by a total of 75 basis points or 0.75 per cent since January.