Industrial output growth slumps in November
India's annual industrial output in November grew at its slowest in a year and a half, partly on seasonal factors, and the Reserve Bank may stay on course to raise rates later this month to combat inflation.
January 12, 2011 / 12:56 IST
India's annual industrial output in November grew at its slowest in a year and a half, partly on seasonal factors, and the Reserve Bank may stay on course to raise rates later this month to combat inflation.
The weak growth came during the end of the festive season in India when many factories close during the Diwali holiday. The data may also be due to a high base effect from last year.The 2.7% rise was way below the 11.3% annual growth in the previous month and under the median forecast of 6.6% in a Reuters poll.Wednesday's data came after a spike in food inflation to 18.3% in end-December, its highest in more than a year, cementing expectations the Reserve Bank of India would raise repo rate and reverse repo rate by 25 basis points each in its review."I think we were anyways expecting a slowdown from the 11.3% (revised) of last month and that has come through. The wider thoughts that it has a base effect and the Diwali season's implications still remain valid," said Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai."Will the RBI get suddenly perturbed? No. It would stay on course to fight inflation and inflationary expectations. What this might do from the market's point of view is reduce the 50 basis points call that was being feared on the policy rate back to a 25 basis points call."Growth in manufacturing, mining and electricity output all slowed down from a year earlier.The one-year swap shed two basis points to 7.28% after the data, while the benchmark five-year swap fell one basis point as the data fell below expectations.Data last month showed India's infrastructure sector output grew 2.3% in November from a year earlier, slower than an upwardly revised annual growth of 8.6% in October. The infrastructure sector accounts for 26.7% of India's industrial output.Annual headline inflation rose 7.48% in November and officials expect it to accelerate to around 8% in December, for which data is due on Friday.RBI governor Duvvuri Subbarao said last Friday a pause in its tightening cycle should be interpreted as a comma and not a full stop, indicating further monetary policy tightening going ahead.The Reserve Bank of India (RBI) has been the most aggressive major central bank in Asia, lifting interest rates six times last year to fight surging prices spurred by rising food costs in an economy growing at nearly 9%.The RBI is widely expected to raise rates by 75 basis points in 2011.Manufacturing production, which makes up about 80% of the overall industrial output, rose an annual 2.3% in November. A fall in December's manufacturing PMI suggests factory output could slowdown in January as well. Analysts said industrial output may be supported in coming months by consumers buying cars, new houses and massive investment in the infrastructure sector.Auto sales in India grew nearly 29% in December. The industry expects a likely hike in interest rates and rising fuel and vehicle costs to slowdown the sales growth in 2011. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
