India's industrial output growth slowed to its lowest level in 13 months in November, according to data on Jan. 11, but analysts forecast no swift cut in interest rates to spur the economy. Industrial production in Asia's third-largest economy expanded by 5.3%, down from 12% in October and 15.4% in November 2006, the official figures showed.
The slowdown in mining, manufacturing and other industrial output surprised analysts who had forecast growth of more than 7% and was attributed mainly to aggressive monetary tightening to tame inflation. "Overall, the message is clear and that is the industrial sector is slowing," said HSBC economist Robert Prior-Wandesforde.
The data came after Premier Manmohan Singh set up a committee this week to map a plan for reviving industrial growth, which accounts for a fifth of GDP and has shown a steady decline in the current fiscal year to March 31, 2008. Nine interest rate hikes since 2004 and steps by the central bank to force commercial lenders to put aside more reserve funds to brake lending growth have dampened industrial expansion -- slowing demand for consumer goods. The economy grew by 9.4% last year, sparking fears of overheating.
But economists said they expected no early easing of interest rates, even as other data showed annual inflation remaining steady at 3.5%. The central bank "may hold interest rates for some time due to concerns over rising international crude oil and food prices," HDFC chief economist Abheek Baruah said. Inflation has fluctuated recently but has stayed well below the central bank's five percent ceiling for this year and is down sharply from 5.89% a year earlier. However, the bank fears record global oil prices could trigger a rise in state-set domestic fuel prices to cut losses at state-run refiners and is concerned about strong world commodity prices. "We expect the Reserve Bank to remain on hold as far as the (official) repo rate is concerned for all of calendar 2008 before cutting in early 2009," said Prior-Wandesforde.
Economic growth for the first half was 9.1%. But the economy is seen losing pace in the second half due to monetary tightening.
Copyright Agence France-Presse, 2008
