Factory output growth eases; seen slowing more

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India's industrial output growth eased in January in line with market forecasts and analysts said it could further weaken with an expected rate hike coming on the heels of stimulus withdrawal.

The Reserve Bank of India is expected to raise its key lending rate by as much as 50 basis points in April to tame inflation that is seen galloping to 9.62% in February.

Output grew 16.7% in January, below the upwardly revised 17.6% record growth in December and in line with a Reuters poll forecast for a 16.65% rise.

Speaking after the data release, the finance ministry's chief economic adviser Kaushik Basu said the reading backed his view the economy will grow over 8.5 percent in the current quarter.

But analysts questioned whether the fast industrial expansion was sustainable.

"Growth at this level does not look sustainable for very very long. The base effect, the cyclical downturn, you can't just expect people to continue to buy cars," Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai, said.

"On the monetary front, the April rate hike may have an impact on (output growth) but that will not be very immediate, there will be a lagged impact."

The benchmark 10-year bond yield , which was initially unmoved by the data, gradually ticked up 2 basis points with traders citing the upward revision to December's figure as the reason for the move.

Between April and January, industrial output in Asia's third largest economy expanded 9.6 percent. It grew 2.6% in the year to March 2009.

Manufacturing output grew an annual 17.9% in January, easing from 18.5 percent recorded in December.