Sat, Feb 11, 2012 - Page 10 News List

Indian factory production grows less than forecast

STITCH IN TIME:On Jan. 24, India’s central bank cut the amount of deposits lenders must set aside as reserves for the first time since 2009, seeking to ease a cash squeeze

Bloomberg

India’s industrial production rose less than estimated in December, signaling weakening domestic demand as the global recovery faltered.

Output at factories, utilities and mines climbed 1.8 percent from a year earlier, after a 5.9 percent advance in November last year, the Indian Central Statistical Office said in a statement in New Delhi yesterday. The median of 23 estimates in a Bloomberg News survey was for a 2.6 percent gain.

The deterioration in factory output might fan concern that India’s growth is slowing after the government forecast the weakest rise in GDP since 2009.

The Reserve Bank of India (RBI) has signaled its readiness to cut rates and shield the economy if inflation eases further, with a fall in Chinese exports last month underscoring the threat to Asian expansion from Europe’s protracted debt crisis.

“We will have to accept that we are in a slowdown mode and factory output is likely to remain subdued for the first half,” said Arun Singh, a Mumbai-based senior economist at Dun & Bradstreet Information Services India. “Moderating growth and cooling inflation will pave the way for the RBI to reduce interest rates in April.”

Manufacturing gained 1.8 percent in December from a year earlier after a 6.6 percent advance in November, yesterday’s report showed. Electricity output rose 9.1 percent, while mining fell 3.7 percent.

The Indian government on Tuesday predicted GDP would rise 6.9 percent in the 12 months through next month from a year earlier, the lowest level since 2008 to 2009. Asia’s third-largest economy expanded 8.4 percent in the last financial year.

The RBI on Jan. 24 cut the amount of deposits lenders need to set aside as reserves for the first time since 2009, seeking to ease a cash squeeze and bolster expansion.

The central bank reinforced guidance that future rate actions “will be towards lowering them,” while saying inflation risks made it “premature” to start reducing borrowing costs.

The bank kept the repurchase rate at 8.5 percent for a second month, following 3.75 percentage points of increases from March 2010 to October last year to fight inflation.

Asia-Pacific officials are striving to weather the impact of Europe’s debt turmoil. Expansion has eased in countries from China to South Korea, prompting central banks to cut rates or leave them on hold.

Indonesia unexpectedly lowered borrowing costs by a quarter-point this week, while both Australia and South Korea left them unchanged.

In India, businesses have reported slowing output growth. Production at steel companies, including Tata Steel Ltd, India’s largest steelmaker, rose 2.2 percent in December from a year earlier, compared with 5.1 percent in November, government data showed.

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