India's Industrial Output Growth Slows in June

High interest rates are hurting manufacturers

India's industrial output grew by just 5.4% in June, down sharply from the rate a year earlier, as hefty interest rates hit manufacturers, according to official data released August 12. In June of last year production increased by 8.9%.

Last month's output grew by 4.1%. And for the April-June financial quarter, industrial production growth slowed to 5.2% down from 7.1% in the same period a year earlier.

Industrial output has been declining as interest rates have risen. The central bank has been steadily hiking interest rates in Asia's third-largest economy in a bid to curb inflation riding at 13-year highs, crimping spending by consumers who take out loans to finance their purchases.

Analysts expect at least one more round of interest rate hikes before inflation starts to soften. India's benchmark short-term lending rate now stands at 9% -- a seven-year peak.

Both the central bank and the, which fears a voter backlash over prices in elections due by May 2009 at the latest, are attaching greater priority to taming inflation than promoting growth. Inflation, now at 12.01% -- nearly triple the level of a year ago -- is of acute concern to authorities because of the impact it has on India's poverty stricken masses.

Experts forecast economic growth will slow this year as high borrowing costs and tough global financial conditions bite, with some predicting expansion as low as seven percent, down from nine percent last year.

Copyright Agence France-Presse, 2008

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