India's industrial production expanded less than expected in August in further evidence of a slowdown in Asia's third-largest economy as soaring interest rates and persistently high inflation weigh on demand. The 4.1 percent growth in August industrial output over the previous year lagged a Reuters poll forecast for 5 percent growth and was only a slight improvement on the revised 3.84 percent growth clocked in July.
Indian industry has borne the brunt of the central bank's aggressive policy tightening. Output has slipped steadily from a double-digit annual pace last year as the Reserve Bank of India's 12 rate rises since March 2010 pushed up borrowing costs at the same time that rising prices and a stagnating global economy curbed investment and demand at home. Whether that persistent weakness in industry will spur the central bank into ending a long cycle of rate rises may be determined by Friday's inflation data.
With the inflation rate hovering near its highest in more than a year, the RBI, one of Asia's most hawkish central banks, is in no hurry to relax its tight policy stance. Indeed, while most emerging market central banks have either cut rates or abandoned their anti-inflation campaigns as the outlook for global growth worsens, India's central bank has signalled it will persist with its fight against rising prices. RBI Deputy Governor Subir Gokarn made clear on Wednesday the policy stance would shift only when inflation pressures eased.