NEW DELHI:The latest factory output and inflation data has brought double cheer for the demonetisation-hit economy.Industrial growth rose more than expected by 5.7% in November 2016, the month demonetisation was announced, defying fears of a plunge because of cash crunch. The consensus expectation was for less than 1.5% rise.Consumer inflation fell in December 2016 to 3.41%, the lowest since November 2014, leaving room for the Reserve Bank of India to cut rates next month. CPI inflation was marginally higher at 3.63% in November 2016.Data released by the statistics office on Thursday showed industrial production at a one-year high of 5.7% in November. The Index of Industrial Production (IIP) had contracted by 1.9% in October.The government junked Rs 500 and Rs 1,000 notes from November 9, sparking fears of severe disruption in economic activity due to cash crunch.​“IIP growth is surprising, especially when industrial growth had fallen in October, which is pre-demonetisation,” said DK Joshi, chief economist at ratings agency Crisil.He said this may not be sustainable as other indicators such as auto sales and manufacturing purchasing managers’ index (PMI) reflected a downturn.Manufacturing PMI for December 2016 had shown a contraction for the first time in 2016. The numbers also got a lift from the weak base of November 2015 that had a 3.4% contraction.“Positive IIP is more likely a one-off case because of a negative base effect. The complete impact of demonetisation will be seen in December, but it would still have the support of a negative base effect,” said Madan Sabnavis, chief economist at Care Ratings.All three components of IIP posted strong growth in November 2016. Electricity generation registered the fastest growth at 8.9% followed by a 5.5% jump in manufacturing output and 3.9% rise in mining production.According to the use-based classification of IIP, capital goods grew by a robust 15%, followed by 4.7% growth in basic goods and 2.7% increase in the output of intermediate goods in November 2016.Consumer durables (an indicator of urban demand) and consumer non-durables (which reflect rural demand) grew by 9.8% and 2.9%, respectively, with 5.6% overall growth in consumer goods.Last week, an estimate by the statistics office showed Indian economy would grow by 7.1% in the current financial year, a number that doesn’t incorporate the impact of demonetisation. On Tuesday, World Bank pared its forecast for FY17 to 7% from 7.6% citing demonetisation.RATE CUT CHANCES RISEThe decline in consumer inflation was due to food inflation cooling to 1.37% in December from 2.03% in November 2016. “Inflation will increase if the core component rises but we do expect RBI to cut rates in 2017,” said Sabnavis.RBI’s Monetary Policy Committee is scheduled to meet on February 7 and 8. The central bank had refrained from cutting rates in its last review on December 7 citing multiple reasons, including an imminent rate hike by the US Federal Reserve.Axis Bank chief economist Saugata Bhattacharya said: “The chance of a rate cut is quite high, but probably not in the February policy. There is still much uncertainty, both global and domestic.”