India’s Factory Output Growth Quickens on Interest Rate Cuts

India’s industrial output in March expanded at the fastest pace in five months after the central bank eased interest rates to revive economic growth.

Production at factories, utilities and mines climbed 2.5 percent from a year earlier after a revised 0.5 percent gain in February, the Central Statistical Office said in a statement in New Delhi today. The median of 26 estimates in a Bloomberg News survey was for a 2.4 percent gain.

The Reserve Bank of India has cut interest rates three times in 2013 to help revive an economy that expanded at the weakest pace in a decade last year, extending the only reduction in borrowing costs this year in the major emerging nations of the BRIC group that include China, Russia and Brazil. Moderating investment, an extended fight against inflation and a drop in exports have hurt growth in Asia’s No. 3 economy.

“Economic activity is still soft,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “We are looking at another quarter point cut, most likely in June, as macroeconomic conditions improve and support a reduction.”

Prime Minister Manmohan Singh’s administration has taken steps to boost economic growth since September by reducing energy subsidies, allowing more foreign investment in industries including aviation and retail, and cutting levies on capital inflows.

The central bank forecasts economic growth will accelerate to 5.7 percent in the fiscal year through March 2014, compared with the baseline projection of 5.5 percent for the previous 12 months. In an interview with Bloomberg TV India this month, RBI Governor Duvvuri Subbarao signaled there was little space to ease monetary policy further after cutting borrowing costs by 75 basis points in 2013.

Carmakers from Maruti Suzuki India Ltd. to Ford Motor Co. reported annual car sales in the 12 months through March fell 6.7 percent, the biggest decline since 2001, as cooling growth and high interest rates kept buyers from showrooms, according to the Society of Indian Automobile Manufacturers.

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