Related News:
India Industrial Production Rises More Than Forecast, Adding Rate Pressure
India’s industrial production exceeded forecasts in July, adding to the case for the central bank to raise interest rates again as soon as next week.
Output at factories, utilities and mines rose 13.8 percent from a year earlier after a revised 5.8 percent increase in June, the statistics office said in a statement in New Delhi today. The jump surpassed all 24 forecasts in a Bloomberg News survey.
Reserve Bank Governor Duvvuri Subbarao convenes a meeting Sept. 16 to determine whether to boost rates a fifth time since mid-March amid signs of sustained factory gains and some slowing in inflation. Today’s report signals breadth in the expansion, with rises in categories from consumer goods designed to last several years to machinery and transportation equipment.
“The fact that production is really quite strong allays some of those fears people had if the central bank went ahead with another interest-rate increase,” said Matt Robinson, a senior analyst covering Asia-Pacific economies for Moody’s Analytics in Sydney. Robinson predicted an increase in rates at next week’s meeting.
India’s financial markets were closed today for the Id-Ul- Fitr holiday. Benchmark 10-year government bonds advanced for a third day yesterday, the longest winning streak in two months, on forecasts that a report next week will show that inflation moderated in August.
Bonds, Rupee
The yield on the 7.80 percent note due May 2020 dropped three basis points to 7.91 percent as of yesterday’s close in Mumbai, according to the central bank’s trading system. Meantime, the rupee completed a second weekly gain as a rally in stocks spurred optimism overseas investors will increase purchases of the nation’s assets to benefit from accelerating economic growth.
Policy makers across Asia are grappling with whether to raise borrowing costs as the region leads the global recovery even as expansions in advanced economies from Japan to the U.S. are slowing. Central banks in Australia, South Korea and Indonesia left rates unchanged in the past week.
The Reserve Bank of India has raised rates four times to temper consumer demand, increasing the reverse repurchase rate to 4.5 percent and the repurchase rate to 5.75 percent.
Manufacturing grew 15 percent in July, compared with a 5.8 percent gain in the previous month, as capital goods including machinery jumped 63 percent, today’s report showed. Mining grew 9.7 percent, and electricity output rose 3.7 percent.
Inflation Rate
Consumer prices paid by industrial and farm workers in India are increasing by more than 11 percent, the most after Pakistan among the 17 economies in the Asia-Pacific region tracked by Bloomberg.
“Inflation will remain a problem in India for most of 2010,” Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai, said before the report. She expects the central bank to raise rates by a quarter-point in the next monetary policy announcement scheduled for Sept. 16.
By comparison, the inflation rate is 3.1 percent in Australia and 1.9 percent in Malaysia, giving their central banks scope to pause and assess the strength of the global recovery.
Last quarter, some of the world’s biggest economies decelerated. Growth in the U.S. slowed to a 1.6 percent annual rate while China’s expansion eased to 10.3 percent from 11.9 percent in the first quarter.
GDP Growth
During the same period, gross domestic product in India rose 8.8 percent from a year earlier, the most in 2 1/2 years, as higher wages boosted demand.
Salaries in India may grow an average 10.6 percent in 2010, the fastest pace in the Asia-Pacific, after increasing 6.6 percent in the previous year, according to the Lincolnshire, Illinois-based human resources adviser Hewitt Associates Inc.
Growth in car sales and bank loans provides evidence of rising consumption in the South Asian nation.
Sales by companies including Maruti Suzuki India Ltd. and Ford Motor Co. climbed 33 percent in August from a year earlier to a record 160,794 vehicles, according to the Society of Indian Automobile Manufacturers.
Bank lending to businesses and individuals climbed 20.14 percent in the two weeks to Aug. 13 from a year earlier, which is near the fastest pace since January 2009.
India’s growth may accelerate to 8.5 percent in the 12 months to March 31, Morgan Stanley economist Chetan Ahya said in a note on Aug. 31, citing a revival in rural demand.
About three-fifths of India’s 1.2 billion people live in the countryside and depend on agriculture for their livelihood.
Adequate rains in the June-September monsoon season, the main source of irrigation in the country, may yield “bumper” harvests, according to the farm ministry, boosting incomes. Last year’s rains were the least since 1972.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net; Tushar Dhara in New Delhi at tdhara1@bloomberg.net.
Rate These Stories
Rate this Page