India's economy grew at its weakest pace in six quarters but outperformed even gloomier predictions, reinforcing expectations the central bank will keep raising interest rates to put a lid on inflation. Gross domestic product growth in Asia's third-largest economy slipped to 7.7 percent in the three months through June, slightly exceeding the median forecast in a Reuters poll for an annual rise of 7.6 percent.
"The latest growth number reinforces the view that although growth is slowing down, it is not collapsing as feared by some," said Ashutosh Datar, economist at IIFL in Mumbai, who said another 25 basis point increase at the central bank's next policy review on September 16 was likely.
India's economy grew 7.8 percent in the previous quarter. The Reserve Bank of India's 11 interest rate increases since March 2010, including a sharper-than-expected 50 basis point increase last month, have failed to bring inflation under control, but have undermined sentiment and demand in an economy that grew at 8.5 percent in the fiscal year that ended in March. Wholesale prices grew 9.22 percent in July, the latest inflation data shows, a tad below June's 9.44 percent, but well above the central bank's 4-4.5 percent comfort zone.
India's slowing growth is the latest sign of cooling in the big emerging BRIC economies. Brazil's economic activity fell in June from a month earlier, the first such drop since late 2008, while China posted slower growth in its June quarter. India's benchmark 10-year federal bond yield rose 2 basis points to 8.35 percent after the data failed to weaken the case for a rate increase at the next policy review in September.
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