NEW DELHI: India's industrial output in May rose a slower-than-expected 5.6 percent from a year earlier, government data showed on Tuesday.
The median forecast in a Reuters poll was for an annual rise of 8.2 percent.
April's industrial output growth was revised downwards to 5.8 percent from 6.3 percent.
ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI:
"The IIP release is significantly lower than market expectation and even beats our below market forecast of 7 percent. While we still await the breakdown of the May IIP release, slower activity in the auto and textile sector most probably weighed on the headline release.
"Despite this lower than expected release, which in turn confirms the moderating growth story, we still expect RBI to hike rates by 25 bps in its July 26 meeting as inflationary pressures are still strong."
BACKGROUND:
- The HSBC Markit Purchasing Managers' Index , an indicator of manufacturing expansion, dropped to a nine-month low of 55.3 in June from 57.5 in May.
- India's services sector picked up steam in June, with activity rebounding from a 20-month-low in May as new orders rose sharply and costs climbed at a slower pace, an HSBC survey showed.
- Car sales in India grew at their slowest pace in more than two years in June, as rising interest rates, fuel prices and vehicle costs shrunk demand in the world's second-fastest growing auto market.
- The automobile industry has cut car sales growth forecast for the current fiscal year to 10-12 percent from 16-18 percent.
- India's exports in June rose an annual 46.4 percent to $29.2 billion, provisional data showed last Friday.
- Headline inflation accelerated to 9.06 percent in May, and a recent hike in fuel prices is expected to aggravate price pressure, which could force the central bank to raise rate further.
- The Reserve Bank of India (RBI), which has been one of the most aggressive major central banks in tightening policy, last month raised its key lending rate by 25 basis points.
- The RBI has raised its policy rate 10 times by a total of 275 basis points (bps) since mid-March 2010. Most economists expect the central bank to raise interest rates by at least another 25 bps on July 26, when it reviews its policy.
- The central bank is expected to raise key rates by at least another 50 basis points in 2011.
- Rising interest rates have begun to crimp consumption and investment.
- India's domestic-demand driven economy grew 7.8 percent in the quarter through March, its slowest annual pace in five quarters.
Copyright Reuters, 2011
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