As per the Index of Industrial Production (IIP) released by the CSO, the industrial growth has moderated to 5.0 percent in 2011-12 (April-September) as compared to 8.8 percent in corresponding period of the previous year. The moderation in the industrial production can be partly attributed to increase in the interest rate. In other words, growth is slowing down because of the increase in interest rates.

The rates have been increased to control inflation. The Reserve Bank of India (RBI) has been increasing policy rate as a part of monetary policy stance since March 2010 to contain inflation and inflationary expectations.

In the forward guidance of the Second Quarter Review of Monetary Policy 2011-12, RBI has reported that notwithstanding current rates of inflation persisting till November, the likelihood of a rate action in the December mid-quarter review is relatively low. Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted.

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